Piramal Enterprises rating – Buy: Lending business to pick up, pharma faces challenges

In its lending business, with most DHFL branches now re-activated, we expect HL disbursements to pick up momentum. However, in pharma we expect challenges continuing in CDMO resulting in below potential sales realisation. We expect complex injectables to register sales recovery and consumer healthcare to sustain its growth momentum. We lift our FY22-24e consol PAT estimates 1-3% factoring in tad higher FS PBTDA and tad lower pharma Ebitda. Maintain Buy.

DHFL integration on track, HL disbursements to ramp up: We expect housing loan disbursements to improve q-o-q in Q4, though more meaningful acceleration is likely post Q4FY22 as disbursements from DHFL branches gain momentum. We believe Piramal is well-positioned as there are no major HFCs with pan India presence in its target segment (Rs 1.6 mn ATS, self-employed borrowers in tier 2-3 locations). Execution though remains the key.

Q4FY22 preview: We expect consolidated PAT (pre minority) to grow 9% q-o-q to Rs 7.7 bn. In lending, we expect loans to fall 2% q-o-q as wholesale book continues to unwind albeit at a slower pace. We expect FS PPOP to fall 4% q-o-q due to lower loan book; we expect FS PBTDA to decline 18% q-o-q (38% y-o-y) owing to higher provision q-o-q. In pharma, we forecast Ebitda to rise 5% y-o-y (66% q-o-q). We watch out for comments on (a) progress on branch ramp-up and hiring; (b) recoveries/collections from derecognised NPL pool.

Maintain Buy: We raise our consol FY22-25E PAT by 1-3% factoring in 2-4% rise in our FY22-25e FS PBTDA estimates partly offset by 2-3.5% cut to our FY22-25e pharma Ebitda estimates. We roll over our PT to March 24e (Dec 23e earlier). Our PT stays unchanged at Rs 3,100. Our SOTP based PT values lending business at 1.4x BV/1.5x ABV (Mar 24e) and core pharma at 18x Mar 24E EV/Ebitda.

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