“The best deals happen in tough times,” believes Jairam Sridharan, Chief Executive Officer, Piramal Retail Finance when asked about the acquisition of Dewan Housing Finance Corporation Ltd (DHFL) during this current economic uncertainty.
In an interview with BusinessLine , Sridharan also said that consumer demand remains strong, and while the rising Covid cases have raised concerns, it is expected that the impact may be muted. Excerpts:
Piramal Capital and Housing Finance Ltd raised ₹4,050 through NCDs recently. How will that be used?
There is the organic business we are growing, which is right now the primary usage of where money is going. The DHFL transaction is another area, which we will need to fund. And there are some investments we are making in terms of hiring more people, opening more locations, which also need to be funded. And there are refinancing needs from the old portfolio we have.
So, the money we have raised will be used for new business deployment, refinancing of old debt, investments in businesses like retail and inorganic acquisition. We will use the money for whatever immediate use case there is.
We will raise more money this fiscal. We have not taken a comprehensive approval but we will raise it as and when the opportunity seems right in the market and the yields seem conducive. Last year was the year of AAA borrowers. Now with liquidity starting to get better for AA borrowers, we will let that play out a little bit. We have raised a boat load of equity capital in the last year-and-a-half. We have over ₹18,500 crore of equity capital. That is a lot for a company with a total book of about ₹45,000 crore.
What kind of consumer demand are you seeing?
Consumer demand has been surprisingly strong since Diwali. Businesses are seeing footfalls. Small town India which depends on small businesses have seen progression. There is a take off in the real estate market as people are buying homes, buying more vehicles as they move away from public transport. But we have to wait and watch with what has happened in April. Everything is back up in the air. No one is talking of a total lockdown and so it looks like core businesses will continue to function and hopeful the impact will be a lot muted. We have an important weapon this time which is vaccination and that is going on in full swing.
What is your consumer base today?
Our overall lending book today is ₹45,000 crore of which ₹5,000 crore or 11 per cent is retail finance. In the medium term, we want retail to be two-thirds of our lending book. The number of consumers is about 10,000. But with the acquisition opportunity -- DHFL had close to 1 million customers, it is a very different scale. So strategically it makes sense for someone in our position to do a transaction like DHFL because it gives us access to a customer base, branches and people. Using that platform, we can start selling other things.
Is acquiring DHFL amidst the current economic uncertainty a concern?
The best deals happen in tough times. If you buy something at a very expensive price, it makes it difficult to make it succeed. If we manage it well, then a good franchise at a fair or low valuation is more likely to succeed than a great franchise bought at a very high valuation.
By when is IRDAI approval expected for the DHFL transaction?
The approval from the Competition Commission of India came on Monday. Now, let’s see when the IRDAI approval will come. They are the regulators, we will wait for their clearance.