The finance company is likely to move towards “predictable profitability” by the end of this fiscal year as it shrinks its legacy book, which is expected to decrease the volatility in the earnings number, he said. Consistency in earnings is a factor that most investors have preferred over surprises.
The legacy books – the stressed loans in Piramal’s book even before it acquired Dewan Housing Finance (DHFL) – will be down to ₹7,000 crore by the end of this financial year. Stressed loans fell from ₹51,435 crore in March 2019 to ₹13,000 crore currently.
“Reduction in the legacy book is what drives a lot of the volatility because reducing the legacy book comes with its share of haircuts or provisions. To fund those provisions, we also unlock a lot of one-time value creators in the balance sheet and so you see big negatives and big positives coming up,” Sridharan said.
The company reported a consolidated loss of ₹1,684 crore in FY24, a net profit of ₹9,968 crore in FY23, and a net profit of ₹1,662 crore in FY22.
“I think, when the legacy book becomes less than 10% of our total portfolio, then naturally there will be predictability of quarterly P&Ls,” he said. The legacy book will be ₹7,000 crore against the total book of ₹80,000 crore, he said.While maintaining that affordable home loans will remain their flagship product, he said that gold loan products and co-branded credit cards will be launched in future while also aiming to expand the microfinance business. The ratio of retail loans to wholesale now stands at 70:30.Sridharan said that the finance company does not have any immediate plans to apply for a small finance bank licence, although it could apply for a licence in future to access deposits and low-cost funds. He said the company does not have immediate plans to raise capital as its capital adequacy ratio is around 24%. The company, however, plans to launch a retail non-convertible bond issue.
In May, the board of Piramal Enterprises approved a composite scheme to reverse merge with its unlisted subsidiary Piramal Capital and Housing. The merged entity will be renamed as Piramal Finance. Sridharan said the merger will be completed by the first quarter of the next fiscal year.