Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Piramal Enterprises Limited Q3 and 9M FY 2020 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha from Piramal Enterprises Limited. Thank you, and over to you, sir.

Good evening, everyone. I'm pleased to welcome you all to this conference call to discuss our Q3 and 9 months FY '20 results. Our results material has been uploaded on our website, and you may like to download and refer it during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our businesses face. On the call today, we have with us our Chairman, Mr. Ajay Piramal; Mr. Vijay Shah, Executive Director; Nandini Piramal, Executive Director of Piramal Enterprises; Khushru Jijina, Managing Director, Piramal Capital and Housing Finance; and Mr. Vivek Valsaraj, CFO of our company. With that, I would like to hand it over to our Chairman and would request him to share his initial thoughts. Over to you.

Welcome. We've had an eventful year with several headwinds impacting our industry. However, our core values and resilience are seeing us through these trying times. We have been able to unlock value on several of our investments, has also raised equity to emerge much stronger. During our Q1 call, we have committed that we will bring in anywhere between INR 8,000 crores to INR 10,000 crores of equity. I'm pleased to inform you that in this exceptionally volatile market environment we have delivered and, in fact, will exceed our commitment. We have been able to bring in INR 14,500 crores of funds into the company through several major milestone transactions, which include the INR 1,750 crores raised from CDPQ as a preferential allotment. CDPQ, as you know, is one of the largest and most highly rated global funds, which is not only an existing large investor for the company but also has been our long standing partner. They deeply understand our business model coming in as an anchor investor in both our issuances, initially $175 million in 2017 and later with a $250 million investment now. This is an endorsement of the strength of our business model and the future growth prospects of our company. INR 3,650 crores was raised through the Rights Issue, which was oversubscribed. Despite such adverse market environment most of our large global and domestic institutional as well as retail investors have reaffirmed their confidence in the company by participating in the issuance. Also, we as promoters fully participated in the Rights Issue. We've signed a definitive agreement to sell the Healthcare Insights & Analytics business, DRG, for USD 950 million or INR 6,750 crores realizing 2.3x our initial equity investment. We maximized the value creation by monetizing this asset at an attractive valuation of 5x trailing EV to sales multiple and 20x trailing EV to EBITDA. We expect this realization to come in by this fourth quarter. Earlier in the year, we sold our stake in Shriram Transport Finance for INR 2,300 crores. On the borrowing side, we've made significant progress during the quarter. We'd like to mention that now liquidity is not an issue for us. During the third quarter of FY '20, we raised long-term funds of INR 4,300 crores. The share of bank borrowings has increased from 49% in September '18 to 67% as of December '19. And our CP borrowings have been reduced by 90% from INR 18,000 crores in September 2018 to INR 1,800 crores at the end of December '19. These significant developments, both on the equity and debt side, over the last 12 to 15 months has led us to have a significant strengthening of our balance sheet, with total equity increasing to INR 34,000 crores on a pro forma basis, with the fund-raise events closing in the fourth quarter, that is by March 2020, and the deleveraging of our balance sheet by INR 15,000 crores since March 2019. Our debt-to-equity ratio should now come down to 1.2x. With this, we expect the Financial Services business to be adequately capitalized and we shall not need additional capital raise in the next -- in the near future. We also see now multiple avenues available to raise debt funds, bank funds as well as from foreign markets, including medium-term note issuances and ECBs. Also, we can see our cost of funds gradually decreasing. Recently, we raised 1,800 -- INR 1,900 crores at 9% or below. Going forward, we expect the cost of funds to reduce to 9% or below by the middle of FY '21, as we retire our high-cost debt and substitute it with the lower cost funding. Our strengthened balance sheet position now enables us to effectively to have both organic and inorganic opportunities that are arising from the significant consolidation taking place in the sectors we operate in. Also, it will enable us to strategically transform our Financial Services business model from a wholesale-led model to a well-diversified model with presence across both wholesale and retail. In the future, our loan book would be granular and we shall continue to grow in a calibrated manner. Now I'll discuss with you some of the financial and operational highlights for the first 9 months and this last quarter. Given the weak economic environment, in our Financial Services business, we are focused on strengthening the balance sheet and improving the business model rather than focusing on growth. Despite this adverse environment, we have delivered a resilient performance during the quarter. In the 9 months of FY '20, our revenues have grown by 14% to INR 10,915 crores and net profit by 20% to INR 1,749 crores. In the third quarter of FY '20, our revenues grew by 9% to INR 3,806 crores and the net profit grew by 20% to INR 724 crores. Our Pharma business has once again delivered a consistently strong performance with a revenue growth of 15% during the 9-month period. Our company's 5-year revenue growth CAGR has been 23% and our 5-year net profit CAGR is 40%. In the Financial Services, as I said earlier, we have raised enough equity capital and have strengthened the liability side. The key focus now for us is to transform our Financial Services business to a well-diversified model with a strong presence in both retail and wholesale. And some of our key business initiatives are: in the wholesale side, we want to make the loan book granular by reducing our exposure to the large borrowers. We've made the conscious decision to reduce our large single-borrower exposure to below 15% of our network. As of December 2019, only one loan is higher than the threshold of 15% of net worth and another [ about ] 12% of net worth, while all the other exposures are below 12%. The top 20 exposures were reduced by INR 3,500 crores in the last 6 months. By March 2020, we expect the largest exposure to be below 11% to 12% of net worth of the Financial Services business, and all other exposures will be below 7% of the net worth of the Financial Services business. INR 9,900 crores of our loan book that was refinanced in the last few quarters, which was refinanced at the same at par also validates the quality of our loan underwriting. With the undergoing consolidation in the real estate's lending space and, in fact, in the wholesale lending space and in significant reduction in competition, the market is now offering low-risk, high-reward opportunities. It is -- whether it is in last-mile real estate funding where we will leverage our expertise in loan underwriting and monitoring to carry out select deals, commercial real estate which forms 1/3 of our wholesale real estate book is also offering an opportunity to grow and to do well. Also, given the limited availability of wholesale credit, our ability to increase the yield make these select opportunities more attractive. The yields on our existing wholesale portfolios have improved by 150 basis points since September 2018, from 13.4% to 14.9% in the December 2019 quality. Coming to our asset quality. Our asset quality has remained strong even in such an adverse environment, reflecting the expertise of domain client selection underwriting and our strong risk and governance framework. There may be some few projects that witnessed some delays resulting in a temporary rise in NPAs, but the loss given default has been minimal at only INR 4 crores in the last quarter. As of December 2019, our gross NPAs have marginally increased. The increase in NPAs is largely on account of few accounts moving from Stage 2 to Stage 3. In addition, total provisioning today stands at INR 947 crores, which is adequate to meet any unforeseen circumstances. We are further derisking the wholesale business model and we plan to do higher yield deals through core lending model or through the fund-based platforms. The company has entered into multiple fund-based platforms with large global investing partners such as CPPIB, CDPQ, APG, Bain Capital and IFC to tap high-yield wholesale opportunities through this fund structure. Recently, we created a $600 million InvIT asset aggregation platform for renewables with CPPIB, where we continue to evaluate deals. CPPIB and IFC have committed an aggregate of $325 million to our stressed asset fund that is the JV with Bain Capital, which has concluded 4 investments worth approximately $400 million. We are also working towards collaborating with PSU banks, global pension funds and foreign banks towards co-lending opportunities. Recently, we also entered into a INR 2,000 crores co-lending AIF with IIFL. The platform has already executed deals worth INR 1,000 crore. These fund-based platforms and co-lending arrangements will enable us to fee income and help us maintain our ROEs despite diversification towards retail financing. Coming to consumer financing. This is a large addressable market, as you know, of USD 1.2 trillion lending and it's a lending opportunity for -- to SMEs and to the consumer segments, which is still underserved in the country with not many dominant technology-enabled lenders. In retail financing, the company is seeking to go beyond conventional lending and adopt a partnership-based approach to access large digital ecosystems. We are looking at making tailored financial products and solutions for customers and partnering with one of the largest telecom players. The retail financing shall be under separate business entity, which will be a 100% subsidiary of PEL. We have also appointed Jairam Sridharan, the former CFO of Axis Bank, as the CEO of Retail Financing. McKinsey has also been brought onboard to prepare a detail strategic plan for our Financial Services business and we plan to build a complementary lending business across the risk-return spectrum, comprising of retail housing finance, consumer and small businesses. In the housing finance business, we see there's a vacuum getting created due to dislocation taking place, wherein a few large HFCs are vacating the space as they are either growing slow, have -- or have completely stopped their disbursements. Also, the continued tightened liquidity situation in this space is also creating significant consolidation opportunities for us to look at M&As and portfolio purchases in this space. We remain focused on targeting customer segments not served by banks and have been taking advantage of this consolidation. Our HFC loan book has increased more than 2.5x since September 2018 to INR 6,140 crores and we have achieved this in a relatively short duration. I would now like to discuss the key highlights of the Pharmaceutical business. In my conversations with investors, I have perceived investors often miss the point that our Pharma business also contributes a significant proportion of both the top line and bottom line of the company. With significant global presence in contract development and manufacturing and specialty hospital generics business, our Pharma business has a differentiated business model from most other large Indian pharma companies and is delivering a solid performance quarter after quarter despite the general pharma industry facing numerous challenges, such as generic pricing pressure, buyer consolidation and increased USFDA scrutiny. Continuing on our long-term track record of a 16% CAGR over the last 9 months -- of the last 9 years, the 9 months revenues of Pharma grew by 15% to INR 3,796 crores, with around 75% of global pharma revenues coming from the regulated markets that is U.S., Europe and Japan. EBITDA margins for overall Pharma segment have improved significantly over the last few years to 23% for the 9 months ended FY '20. The absolute EBITDA grew at a CAGR of 39% over the last 3 years to INR 900 crores for the 9-month period. And global pharma margins were even higher at 25% for this period. We have a continued focus -- strong focus on quality and compliance and we have successfully cleared 36 USFDA inspections, 162 other regulatory inspections and almost 1,100 customer audits since FY 2012, without facing any production stoppages and loss of sales. We've never had an official action initiated, OAI, status for any of our USFDA audits. We are now confident that all our pharma businesses will continue to deliver strong profit performance in the future due to the following growth drivers: Our CDMO business, we have a healthy pipeline of early and late-stage development projects. The share of innovative products in our CDMO portfolio has increased over the last few years, and we believe that this trend will continue as more product from the development pipeline are commercialized in the future. Our strong capabilities in niche, complex areas, such as Antibody Drug Conjugates, high potency APIs and sterile injectables enable us to compete in high-growth market segments. Our focus in the CDMO business is also on providing integrated services across the drug life cycle to increase our customer stickiness. We also have plans to increase our production capacities as multiple sites further through brownfield expansion. In the complex hospital generics space, we're increasing our market share in the inhalation anesthesia portfolio. We are also leveraging our strong global distribution network and GPO relationships by adding new complex hospital generics, such as Desflurane to our portfolio. We have a strong pipeline of new products across various stages of development. In the Indian consumer health care market, we are leveraging our strong brand equity and consumer pull that we have for our core brands to cater to a large share of the consumer health care market, and we are increasing our investments in marketing and promotion. Our Indian consumer health care business delivered a strong year-on-year top line growth of 37%, with revenues of INR 336 crores for the 9-month period of FY '20. We continue to work on building power brands as well as launching new products through in-licensing and acquisitions to leverage our all India wide distribution network. We plan to bring the pharma businesses under 100% subsidiary, and thus raise funds by issuing a minority stake to potential financial investors. With the subsidiarization of pharma as a standalone entity, PEL structure will now become significantly simpler to analyze and understand. One would be the Financial Services business and the other would be the Pharma business. It is a step in the direction of eventual demerger and separate listing of the Pharma and Financial Services businesses. The fund raise will not just provide growth capital, but will also enable value discovery for our Pharma businesses. The funds that we raise will be used to target both organic and inorganic growth opportunities across the businesses we operate in. We will -- we are also evaluating our reentry into the domestic formulation market through an acquisition. To summarize, in an eventual year and in a difficult economic environment, we had taken several milestone steps that have made us significantly stronger. The Financial Services business is sufficiently capitalized and shall not need additional capital in the near future. Our expansion into Retail Consumer Finance and further growing our Housing Finance shall provide the growth impetus going forward and will be scaled rapidly. Going forward, the business shall focus on building a granular and diversified loan book by growing in a calibrated manner. In the pharma, our differentiated Pharma business is expected to continue its growth trajectory, further boosted by the infusion of capital. This infusion will not only provide capital for future growth, but also enable value discovery. In all our businesses, we will continue to explore accretive inorganic opportunities. We would like to exit our investments in Shriram at an opportune time and price to unlock maximum value. Our DRG investment -- divestment, the infusion of capital in pharma and the sale of investments in Shriram are steps towards simplifying the structure of the company, which will now be focused on its 2 core businesses: Financial Services and Pharma. As a result, these businesses will be simply -- simpler to analyze. With every step, we are moving closer towards unlocking value for the company and future. Thank you.

Operator, we can take questions.

[Operator Instructions] The first question is from the line [ Subrat Dwivedi from SBI Life. ]

Sir, hello. Am I audible?

Yes, go ahead.

The first question is on asset quality. So earlier, you had mentioned that there were 18 identified accounts totaling INR 2,800 crores, which were stressed. And out of that, 14 accounts had been resolved, so stress was remaining in only 4 accounts amounting to INR 600 crores. So the INR 500 crore slippage, which has happened in this quarter from Stage 2 to Stage 3, that is on account of these 4 accounts or there is anything outside that?

No, so let me answer that. So you're right. They were part of the 18 deals. Also let me clarify on those 3 deals, which have all added to Stage 3, one of them which is ILD is not actually bad account. It's just that we went for a onetime settlement, and we wrote off around INR 34 crores to INR 35 crores. And that's why we moved it to Stage 3 because we believe that a smaller account, if you recollect, last time also we mentioned that, that wherever there's an opportunity for smaller accounts, as we are now moving to a more granular book and increasing the quality of the asset, wherever we find that it is better to do a onetime settlement and with a large provision available, so ILD is one of them. The other 2, which is Ornate and Delhi Baroda, are the ones which -- are the -- we have taken the companies to NCLT, and that's why we need to take it to -- that does not necessarily mean that the entire amount is the loss given default. It's just that we need to take the company to NCLT to take control of the assets of the company, and that is why we have moved it from Stage 2 to Stage 3.

Understood. But these were part of those 4 accounts, which you had identified as stressed and that was amounting to some INR 600 crores or...?

No, except for the Delhi Baroda, others were already part of that stressed accounts. Yes.

Okay, okay, okay. And sir, my second question is on the DRG transaction. So what are the timelines for the closure of that? And the money -- how will it come to India? What will be the tax implications? To which entity, it will come? And how will it be used? Will it be used to repay debt?

So it becomes a transaction, the money should come before the end of March 2020.

And money will come into India by way of return of certain intercompany payables. So there are no specific tax implications on a larger part of the consideration, which comes into Netherlands. There will be small insignificant tax implication for the sale of the India part of the business.

And this will come to Piramal enterprises?

That's right.

And it will be used to repay debt here?

That's right.

The next question is from the line of Abhijit Tibrewal from ICICI Securities.

First of all, congrats...

Mr. Tibrewal, your voice is breaking. I request you use a handset.

Can you hear me now?

Yes.

Yes. So I wanted to understand, while we understand that the equity raised from the pref plus rights issue and the proceeds from the sale of your DRG business is fungible at the holding company level. Would you like to share some thoughts that how would you like to deploy it between Financial Services and Pharma now?

So Pharma does not need any additional capital out of this. So we expect that -- so we expect that by the end of March, we will put maybe about equity capital in Financial Services should be in the region of INR 20,000 crores, but we have to still decide the allocation.

Okay, okay. All right. And sir, just a follow-up to the first question. So out of the 3 exposures, which have moved to Stage 3 now, so if I understood correctly, ILD was about INR 34 crores, INR 35 crores. Ornate, I'm guessing, it was around INR 180 crores for you, if I'm not wrong. So would that mean Delhi Baroda was around -- roughly around INR 250 crores?

Delhi Baroda was INR 75 crores, Ornate is INR 190 crores, and ILD INR 172 crores.

Okay. So how is it that, I mean, when we have these exposures moving from Stage 2 to Stage 3, we have not had to make incremental provisions?

We have made, in fact, incremental provisions by the fact that it moved from Stage 2 to Stage 3. So ILD, we are fully provided for the settlement. And Delhi Baroda, basically, because we took it to NCLT, we have provided in the Stage 3. And also Ornate, which is 15% we have provided, because we have taken it to NCLT, not necessarily the -- it means that there will be a write-off, it's just that we need to move the right part to take control of the land.

So the Stage 2 number also goes down.

So to that extent, the provision get released and it gets bid up at Stage 3 level. So the total provision, that's why it doesn't change materially. However, if you look at stage-wise, the provision has been made wherever there was a requirement from the asset perspective.

So Hitesh, would you have a breakup of your provision between Stage 1, Stage 2 and Stage 3, that INR 947 crores number that you have given?

I don't think we disclose that. I don't think we disclosed that.

Okay, no problem. And sir, just last one, last one -- one last question on your Consumer Finance. So I mean, while you have very clearly articulated, I mean, the way you look at Consumer Financing going forward. I mean, one of the apprehensions that kind of, I had, is when we talk about Consumer Finance, we are probably talking about taking on 2 very, I mean, big, big names in the financial space, who are like the leaders in consumer financing today. So I mean, in terms of maturity curve or a preparedness curve, where are we right now? In other words, what I'm trying to understand is, I mean, while I understand, we have brought onboard, Mr. Jairam, how long will it take before we really start disbursing? And what is the way forward for consumer finance now?

So as far as the housing finance is concerned, in Consumer, we are already there. We are actually -- you will see that the loan book will start growing in the first quarter of the next financial year. And Consumer Finance will also start sometime in next year. We will be sharing much more details a little later, McKinsey is also working on the study. So when we get our -- the last quarter results, we'll be giving you more granularity in that. Besides in the Consumer Finance area, we need to also keep in mind that there are several inorganic opportunities, which are also available, given the consolidation that is taking place. Obviously, we will evaluate these only if we find that the quality of the book is good, that culture is good, and it is at a decent value, then we would do that.

Sure, sir. Sir, if I understand you correctly, I mean, Consumer Finance opportunity that we see right now, it could be a mix of both organic and inorganic?

Correct.

The next question is from the line of Piran Engineer from Motilal Oswal.

Congrats on the quarter. Just a few questions. Firstly, you mentioned that you took Ornate and Delhi Baroda, if I heard correctly, to NCLT. So did you lend at the balance sheet level or at the SPV level?

So Ornate is at the SPV level, and Delhi Baroda is not a real estate company, it is actually in the truck [indiscernible] financing. It is part of our ECL portfolio. So there, we found that there were some issues with the numbers and that's why, as a proactive step, all lenders have taken the company to NCLT. So Delhi Baroda is not a real estate company. But Ornate, at the SPV level, yes.

Okay, okay, understood. So when you take Ornate to NCLT, you were basically just taking the SPV, right?

Absolutely.

So if there are other lenders to Ornate in other projects, they are not impacted by you taking them to NCLT?

No.

Okay. And what would the process now be like?

So now the CoC will be called, and the whole idea is to get a clear title of land, as you understand. And that is why it's a process, but we need to go through that process. And if you go through the process, we have to declare it as a Stage 3, and that's why -- that's exactly what we have done.

Okay, okay, understood. And sir, secondly, you've mentioned that you've tied up with IIFL, AIF, what exactly is this? Are you all both lenders to the same project? Or what exactly is the tie-up really?

So basically, IIFL and us are tied up for last-mile funding. IIFL is using their platform for raising money from their investors of around INR 2,000 crores. We will be pooling in asset. It could be assets from Piramal platform also and it will also be assets from the outside. But basically, the idea is to take advantage of the last-in first-out senior secured lending.

But then, how is that different from your tie-up with CPPIB and Ivanhoe Cambridge, you all have a similar structure here, right?

Yes. So let us all divide it into real estate and non-real estate. In real estate, Ivanhoe Cambridge, we do the equity lending, that is equity lending, not debt lending.

Equity investment.

Equity investment into projects. And CPPIB is non-real estate into senior secured between 13% to 16%.

Okay. And this will be into real estate, but debt?

No, CPPIB...

The IIFL one, sorry. No, no, the IIFL one will be?

IIFL is debt into real estate. Yes.

Debt into real. Okay, now I got it. And just lastly, you all have started securitization 2 quarters back and now the book is already INR 4,000 crores. So are these retail loans you are securitizing or corporate? And is this through the PTC structure? Or is it a direct assignment?

So let's divide the INR 4,000 crores into 2 parts: One is INR 1,200 crores, which is retail book, which we have done as a PTC structure. And as we have explained last time also, we did the first in India, the wholesale book, which we got rated CRISIL AA+ and we then sold it down to the investors. Again, a PTC structure.

So that wholesale was real estate or your corporate?

Real estate.

The next question is from the line of Abhishek Murarka from India Infoline.

So 2 quick questions. One, now what is the plan with respect to the Shriram stakes? Is just a sell-down the only option or is there any other option that you can pursue. Specifically, because you are looking to build a book in Consumer Finance, does [ COF ] become one of those books, which can fall into an inorganic opportunity? So that is one. The other question is if you can just give some color on the structure of your refinance or sell-down, who are the lenders who are refinancing exposures? And just something around the structure of how you sell down assets on the wholesale.

Well as far as Shriram is concerned, I think, we've said this before also, that we believe that we will go towards monetizing our investment in Shriram at an appropriate time. So that process is on, though we are getting into Consumer, but that will be of a -- I think we are getting into a different type of consumer lending. As you know, today, the new-age consumer lending will be different. It's more technology-driven, more analytics-driven. So that's what we will be doing. So we will continue. And there is not a -- we are not looking at an opportunity to do any inorganic. And Shriram, they are also not interested in doing any sales, so it has to -- both parties have to agree.

On your other question...

The refinance...

On the down-selling, on the refinance. So the refinance happens mainly with public sector banks and private sector banks. But the moot point here is that -- which are the assets which we like to refinance is basically the ones which are like the lease rental discounting, which do not make sense in today's cost of funds. And the second is where we have been systematically in the last 1 year, getting our wholesale book more granular. So the single borrower comes down, so these are the 2 fundamentals we use when we do the refinance, and they are all done at par.

So out of the INR 9,900 crores sold down in the last quarter, how much of that would be LRD?

How much of that would be LRD? In the 9 months, not last quarter.

In the -- yes, my bad.

We'll come back to you on this.

And just lastly, has the portfolio yield gone up largely because of that because you've sold down the lower-yielding portfolio and, therefore, the residual is now at higher yield.

No, actually, it's a combination of both, but largely because we have been able to pass on in this quarter, the higher cost of funds, which we passed on to our customers.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investments.

Sir, on this Pharma business, when we are saying that we will be convert -- taking it to subsidiaries and raising the money, so later on, can you share your thought process that whether will be vertically the -- I mean, separating, I mean, and the shareholder of the Piramal Enterprise will also get the share of that? Or -- and what is the timeframe that you have in mind?

So yes, you're right in understanding that the shareholder of Piramal Enterprises will be the shareholder in the pharma company as well. The time line is about 3 years' time, I think we should do that.

So structure will not -- I mean, Piramal Enterprises will not remain a holding company in the...

Correct.

Is that correct understanding?

Yes.

Sir, can you give your vision, I mean, on 3 years' perspective for the pharma as well as the consumer health care? Where do we see -- because consumer health care is still, I mean, very small business and making only 7% kind of EBITDA margin, so can you share your thought -- I mean, vision for...

Overall, Pharma business is continuing to grow. If you look at our track record, we've been consistently growing year-on-year, 15%, 16%. That is, going forward, I see that this growth will be in 2 ways: one is organically, which we can achieve these numbers, plus there will be some inorganic growth as well. As far as the consumer business is concerned, we have been focusing on increasing -- as you know in consumer business, the most important thing is to keep building brands and to do selling and distribution, which has been a conscious strategy for us to grow the top line and we've grown it in the first 9 months, 37% in this. Our idea is to grow the top line, invest in the sales and the distribution and, therefore, margins will follow. So we are -- last year, we had actually a loss in EBITDA, if you see, from a minus INR 30 crores, we have brought it to a plus INR 30 crores this 9 months, and we'll continue to actually grow the brand and profitability will follow. It's a long-term business.

Yes. I understand, sir. And this 15% on Pharma business -- global Pharma business will be organic and inorganic will be [ additional ], correct?

Correct.

And are we looking, I mean, domestic formulation business? Also, I mean, in...

So we are looking at it. We have to find the right business. It has to be in the right valuation. In that case, we would do it.

Sir, on this Consumer Financing business, when we are -- so this fintech, we have developed or we are looking for some -- partnering with some fintech company? And what will be the contour of the whole business, I mean, because how do we'll really assess the risk of the client without having a background history or anything?

See now, if you -- first of all, as far as a fintech is concerned, it will be a combination of both. We will be having our own proprietary fintech, which is what is required to build platforms. We will also be actually partnering with other fintechs. We may also do some acquisition in fintechs as well. So it will be a combination of all this. It will not be either/or, it will be and, and, and. And the way today, that's where fintech comes in also is that the technology, if you looked at only about 10 years ago, only 10% of the consumers data was available on credit -- on the credit portals. Today, more than -- it's almost 55% to 60%. So we will use this and that's how we will build up. And yes, we will assess the risk and only do it when we see that the risk is contained.

The next question is from the line of Kunal Shah from Edelweiss Securities.

Yes. So firstly, in terms of the overall retail book. Actually, we had seen in the absolute term on balance sheet retail book has come up from INR 6,400 crores to INR 6,100 crores on a quarter-on-quarter basis. So is it -- maybe we have slowed down because I think retail is doing pretty well in the industry, and maybe we would have expected some rundown in the wholesale, but couldn't understand the reason for the rundown in the retail? Is it off-balance sheet items? Or we have seen these lower disbursements?

So, I think it's a good question. I think last time also, somebody has asked the same question on retail strategy. But you're right, so if you recollect, I don't know whether you were there on the call last time, we had mentioned that in retail, we were relooking at our entire strategy. And we were looking at that not to do housing finance where the banks are because it doesn't make sense. So in fact, happy to tell you that we are now actually ready with our new strategy, and we have actually started from January as per the new strategy, which is more based on technology going down the curve rather than giving high -- big, big loans. The loan's average size is now between INR 15 lakhs to INR 25 lakhs. The yields are better. So that was a conscious decision taken, especially at a time when the cost of funds were high. So that was one of the reason why you see the dip. So we consciously want to run down the loans, which do not make sense. So that is one part. The second was the cost of funds. Here, again, I'm happy to inform you that we have actually started getting loans, specifically for retail which are now in the range of 8.5% to 8.75%. And that is why, in this quarter, whether Jan, Feb, March onwards, you will see the HFC book, the retail book, again, going up from 12% to probably 16%.

So in terms of disbursements, if I have to look at it, how much of disbursements would have got affected because of this recalibration of strategy? And how much of it, which was there, which we were doing it earlier as well in terms of the lower ticket size and in this kind of yield range?

So we were doing anywhere between INR 400 crores to INR 500 crores at the peak. And on an average, around INR 300 crores to INR 350 crores. Now since we slowed down because of the recalibration of the strategy; in Jan, Feb, March, again, we will go back to [ INR 150 crores to INR 200 crores ] disbursement per month. And then we will push it up from April, once our entire new strategy is tested.

Kunal, given the explanation, if you look at the Y-o-Y growth in this business, it's been 57%. So from those perspective, we feel that this is a...

Yes, yes, yes. I clearly understand that, yes. Just wanted to understand from quarter-on-quarter side. And this should help in terms of yields as well is what you are saying?

Absolutely, absolutely.

Okay. And secondly, in terms of asset quality, so given that Mr. Piramal also highlighted that obviously, the environment is challenging, but we are not seeing any further stress building up apart from those 18 deals which have been identified earlier. We are not seeing any further stress getting created on the books at all.

For that, you need to understand what have we been doing to ensure. Besides the early warning signals and the monitoring, what have we really done? If you look back 15 months, we have done a very proactive management of the escrow. And if you divide our portfolio between late-stage, middle stage and early-stage, it has significantly changed in the last 15 months. Why? Because the money which we swept from the escrow in the late stage, we actually used the money to ensure that our early stage and mid-stage projects get completed. And that's why today, so that is exactly the thing which we have done, ensure that the projects gets complete. If you have a good cash cover, you bring down the price and sell and that is why you have seen that the stress for us has been relatively much lower than what you are seeing in the market. And -- so basically, that's the reason.

Okay. And out of 4 deals, which we were working, and maybe it was expected to complete in, say, 1 month or so, when you did the last call. Two of them have already slipped and what is the status of the other 2?

The other 2 are fine. That's got resolved.

Okay. So those have got completely resolved. There is no risk in terms of any Stage 2 now falling into -- anyways your Stage 2 number is very small now, but there is no risk of that getting into Stage?

But here, I would like to again clarify and emphasize the point. For us, it is not about Stage 2 or Stage 3, it is really the loss given default. Because Stage 2 and Stage 3 is nothing but a time -- if there's a delay. At the end of the day, if we are confident of using the right mechanism and the process to recover our money, I don't think we should worry. So even if -- suppose tomorrow, if there is some delay we will not be shy of throwing it in Stage 2. At the end of the day, what is most important is our ability to recover the money.

Okay. And the last question in terms of inorganic opportunity?

Kunal, there are more people in the queue. So can you -- would you be fine coming back?

Yes. Sure.

Given the time constraint that we will have.

[Operator Instructions] The next question is from the line of Aditya Jain from Citigroup.

So looking at Page 7, where you have shown the pro forma equity and borrowing. So is it right to understand, the INR 10,000 crores out of the total capital raised will directly be used for debt repayment? Or is this more like net borrowing, so netting off the cash or are we going to directly repay debt?

So is the question debt repayment or what you said?

So are we going to use INR 10,000 crore for debt repayment? The roughly INR 10,000 crores.

Yes. So let's understand, Aditya, any capital that comes in, first day, you cannot utilize all of the capital. So on an immediate basis, what you do is, you don't keep cash on your balance sheet which doesn't earn any money and keep paying higher borrowing -- I mean, higher cost on the borrowings. So the first thing that we do is, you reduce your debt. But then this capital will remain on balance sheet. The equity-debt leverage ratio doesn't change going forward or maybe change only to the extent of the book growth. So that capital, we'll definitely be able to use for organic and inorganic purposes.

Absolutely. So the initial intent will be to reduce debt, maybe in health care. And then, obviously, the equity part is available as capital in the future. And the LGD of INR 4 crores that you mentioned, so that was across how much principal?

We'll come back on this.

Got it. And then Lodha, what is the situation now? I think the exposure was INR 3,100 crores as of last quarter?

So the Lodha exposure is down to INR 3,000 crore. And what is significant here to mention about Lodha is that we have been saying this again consistently that our portfolio assets are actually getting more towards completed. So just to give you an idea today of our total -- out of INR 3,000 crores, we have a cover of more than INR 6,000 crore of assets. Almost INR 2,500 crores are now completed assets in terms of both residential and commercial. And in fact, in the next 6 months, we expect another INR 1,000 crores to get completed, so that is one very positive development. Apart from that the other development, which we are doing is also some of the assets we are actually pushing it in the SPV rather than in the holdco and that process also has started -- the Lodha has started that process, which should take a couple of months to complete. Thirdly, over and above that, there have been interest shown by other institutions also to get some of our assets refinanced. And I think, in this quarter, on latest April, we would be able to shave off INR 400 crores to INR 500 crores further, so it should be down to INR 2,500 crores.

The next question is from the line of Nischint Chawathe from Kotak Securities.

Is it possible for you to share a breakup of the equity for the finance business into what could go into consumers and what could stay in the real estate HFC or [indiscernible]?

No, I don't think we can give that much granular detail. We are not -- today, we are not in a position to give that.

And broadly, we are on track to kind of push the entire real estate lending business in the HFC in, I think, next 1 quarter or so?

Yes, it will go in the HFC?

Yes, yes.

Just one final thing. It's almost 1 year since the entire liquidity prices has hit the real estate industry, so if you could kind of give some broad color in terms of what are developers doing? Is the worst behind? What's up with the industry? And are there any key things going forward? Maybe not from your portfolio, but maybe from an overall industry point of view.

Overall, industry, let's keep it aside because there are other questions, we will be happy to answer.

The next question is from the line of Rohith Potti from Marshmallow Capital.

The first question is, broadly, I would like to understand with all the fundraising done, what would -- what was the non-financial services business debt before the whole fundraising? And after the intended repayment, what would be the debt in that portion of the business?

So with DRG, about INR 4,000 crores debt approximately will be paid off, and INR 2,500 crores will go in towards equity.

Okay. So the non-financing service debt, the remaining debt would be how much after that then?

Roughly, about INR 5,000 crores.

Okay, understood. And I missed that financial services business equity after the whole fundraising, how much you'll be putting into it. Could you repeat the number, please?

It will be about INR 20,000 crores.

INR 20,000 crores. Okay, understood. And sir the next question I have is on the housing finance business. So when we began the business, I think, around 2, 3 years back, we were talking about how we'll be focusing on the self-employed portion of the population in the country. But I remember seeing it I remember in the last presentation being that 70% of our book was towards the salaried class. And then we have this particular new strategy of entering the Consumer Finance business using the technology -- I mean, technology-enabled data that is available in the country right now. Sir could you please tie this all together to help us understand if there has been a change in the self-employed population target and et cetera? Or is it for the next quarter that we'll be able to do that?

I think it's a very good question. A couple of answers on that. I think you're absolutely right. We were -- when we started, we said that, ultimately, we will focus on self-employed. But when we focus on self-employed, in fact, one of the quarters, we had mentioned that before we start the business, the most important thing is to get your underwriting and process right for self-employed. Like we have done in the wholesale. And that is exactly why, the last few months, in the last quarter, we slowed down because we were shifting the model. So yes, going forward, our aim is now to move to at least 50-50 self-employed. And you will see the shift in the next 6 to 9 months, where you'll see more of self-employed coming in because now we have got a new model in place. The other part, which you rightly mentioned about fintech. In fact, it's not new to this group. In fact, we have started using fintech even for housing finance, and that is why it gives us the confidence that in the new strategy, we'll be able to do more self-employed.

The next question is the last question from the line of [ Vivek Joshi from Bandarpuj Capital LLP ].

I have 2 quick questions. The results were excellent. Congratulations for that. And my 2 questions are, of the lending, how much of the loan book still resides in the, like, Piramal Enterprises, like the main company book? And the second question is, in this quarter, how much of the provision have you provided? Because from last September to this -- September 2018 to this time, the provisions have not moved up. So has the provision ratio come down? Or like -- because earlier we had 2x cover, like, so -- or have you provided something in this quarter?

Yes, the last question first. The book has come down. So actually, the provision ratio has not come down, and that's why you see the static number. And the first question on PEL, we have brought it down now to INR 1,600 crores and major part of it is Lodha, which will also now be moved to PCHFL by March because of the equity infusion coming in.

No, but in this quarter, could you give me the number, how much has been provided in provisions in this quarter in the line item of the INR 947 crores of provisions?

How much has been provided for the PEL asset?

The NPA, like, the provisions for the NPAs. Out of the INR 947 crores in this particular quarter?

See if you look at the total of Stage 2 and Stage 3 is not changing much. And that's where -- if you look at total provisioning, it continue to remain at INR 1,000 crore. And because it's just a shift from Stage 2 to Stage 3, which is happening. And the total of Stage 2 and Stage 3 is not changing as much, the total provision is nearly similar to what it was. I suppose, that's actually gone down.

But [ technically ], the provision coverage ratio has come down, right? I mean, is that a correct assessment?

Thanks, operator.

Thank you. Ladies and gentlemen, on behalf of Piramal Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.