Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Piramal Enterprises Limited Q4 and FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations Officer of Piramal Enterprises. Thank you, and over to you, sir.

Hi. Good evening, everyone. I'm pleased to welcome you all to this conference call to discuss our Q4 and full year 2020 results. Our results materials have already been uploaded on our website, and you may like to download and refer it during our discussion. This discussion today may include some forward-looking statements, and these should 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 Limited; Mr. Rajesh Laddha, Group CFO; Mr. Khushru Jijina, MD Piramal Capital & Housing Finance; Mr. Vivek Valsaraj, CFO of the 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, sir.

Good day, friends. I hope that all of you and your loved ones are safe. These are really extraordinary times. And perhaps the most important thing for all of us is to ensure that you are safe and so is your family. These are uncertain times, but with this as a background, let me cover what has -- what we have done in the last year. In the first quarter of last year, you would remember that we had committed to bring in equity of INR 8,000 crores to INR 10,000 crores. Despite a volatile market environment, we've exceeded our commitment and were able to bring in INR 14,500 crores of capital, out of which $950 million, which is INR 6,800 crores was from the sale of DRG, a transaction which closed in February in the midst of the COVID-19 crisis in the U.S. We could raise INR 1,750 crores as preferential equity from CDPQ, which has been a long-standing investor with us. We also raised an additional INR 3,650 crores through a rights issue, which included INR 1,600 crores being invested by the promoters, and we sold our Shriram stock for INR 2,300 crores. So these measures helped us increase our equity base to INR 50,500 crores and significantly deleveraged our balance sheet, resulting in a net debt-equity of 1.2x, which was compared to a net debt-equity of 2x at the end of March 2019. In addition, we remain on track to raise growth capital for our Pharma business through a minority stake sale. Further, as we have said earlier, we will be exiting our investments in Shriram companies at an opportune time to realize maximum value. Coming to this quarter. During this quarter, revenue declined by 2% to INR 3,341 crores, and we had a net loss of INR 1,700 crores. The full year performance, year ending FY '20, saw a revenue growth of 10% to INR 13,000 crores and a net profit of INR 21 crores. Our top line performance. As far as our Pharma business has been concerned, we continue to perform well despite the COVID crisis and grew by 13% in the financial year. Within Financial Services, as has been stated in our strategy for the last 2 quarters, we have been treading with utmost caution, not chasing growth and instead preserving liquidity and deleveraging our business. Thus, the debt-equity ratio for the Financial Services business is now 2.6x compared to 3.9x a year ago. Our single borrower exposure, which we were committed to reduce in the wholesale book, declined by 12% year-on-year, with the top 10 exposures going down by INR 4,200 crores and the reduction in the loan book from INR 56,600 crores to INR 50,900 crores during the year. And this has been why the top line growth of Financial Services was restrained. Our net profit was impacted largely by the following nonrecurring items that occurred during the year. First of all, although we strengthened our balance sheet and we were well positioned to manage any contingencies, we believe it is prudent to be cautious during this unprecedented macro crisis emanating from COVID-19. To assess the potential risks of our business may face if COVID-19 is prolonged, we ran a scenario analysis across both the wholesale and retail lending portfolios, and these were the assumptions for our scenario analysis. The COVID-19 outbreak peaks in June 2020, till which time the lockdown will remain in some form. GDP growth rates slows down considerably, and there is a surge in the unemployment numbers. The economy gets back to February 2020 levels only after a quarter post complete removal of the lockdown. And liquidity is expected to remain tight as government will look for avenues to raise funds to pay for any stimulus. These assumptions were used to determine sector-wise impacts, which were in turn applied to a deal level to assess the impact of the scenario. Based on the outcome of the scenario analysis, we decided to adopt a conservative and prudent approach, hence, making an incremental provision of INR 1,900 crores, which was in addition to the usual provisions against the GNPA. As a result, the total provisions have increased from INR 947 crores, which was 1.8% of the book in December 2019 to INR 2,963 crores, which is 5.8% of the loan book in 2020. It may be noted that a large part of the portfolio, 97.6%, is standard with GNPAs at 2.4%. And thus, we believe that if action is taken in all these specific projects, we will be able to bring down the NPA. The second item that is a one-off item has been the DTA write-off. In Q4 2018, the reverse merger of Piramal Capital and Piramal Finance into Piramal Capital & Housing Finance had created a deferred tax asset of INR 3,500 crores. In September 2019, the corporate tax rate was reduced to 25% from 35% provided companies do not avail some other tax exemptions or incentives. Given the comparative advantage, we have opted for the new tax regime. As a result, there is a onetime noncash impact from DTA write-off and MAT credit reversal of INR 1,760 crores. However, we will continue to get similar benefit towards profitability and cash flows in future by paying the tax at the reduced rate of 25%. The third item has been the gain on the sale of DRG. DRG was sold for a consideration of $950 million, and we recorded a gain of $100 million, net of transaction costs on this. And this has been reversed to determine normalized profit. Therefore, the overall impact of the one-off nonrecurring items has been that the normalized net profit of the company grew by 40% to the quarter to INR 807 crores and grew by 22% for the year to INR 2,615 crores. I will now go for the business-wise performance. Before that, let me just give you look into the revised capital allocation across our businesses because I know that many of you have been asking us this. Post these capital initiatives and adjusted to the one-off items that have impacted this quarter's P&L, we now have an equity of INR 30,500 crores. And the gross debt for the company has been lower by INR 14,000 crores from INR 56,000 crores to INR 42,000 crores as of the end of March. This leads to a current net debt-to-equity of 1.2x versus 2x in March 2019. The financial services book has a loan book of INR 51,000 crores. As I mentioned, to maintain the net worth post creating the additional conservative provision and additional allocation of INR 2,000 crores has been done to the financial services book from the unallocated equity pool in Q4. Both the revised equity allocation adjusted to the one-off items during the quarter, the business now has an equity of INR 15,600 crores and borrowings of INR 40,000 crores to come to a leverage ratio of 2.6 versus 3.9 in March 2019. For the Pharma business, revenue has been INR 5,400 crores with an EBITDA margin of 26%. As you're also aware, the Pharma business is currently in the process of raising capital minority stake for its growth initiatives. Therefore, in addition to both these businesses, we have an unallocated equity pool of INR 10,500 crores. Coming to the pharmaceutical business, pharmaceutical companies are playing an important role in these tough times making pharma one of the safest and most resilient industries in this period of uncertainty. Our unique business model remains well positioned to meet the challenges, the challenges of ensuring continuous production of life-saving medicines while the ensuring the safety of employees, variability in sales due to access challenges and changes in selling models. Our businesses in the pharmaceutical space have a strong positioning. The underlying demand for our products and services remain strong. The underlying medical conditions that drive demand for our complex hospital generics and CDMO products and services remains unchanged. If there is any near-term volatility in this, it is temporary in nature and it will normalize over time. We also see some potential upsides related to the current situation. Some of our complex hospital generics are used in COVID-19 treatment. We have received 30-plus COVID-19-related new business inquiries for our CDMO business. We have seen an increased demand for some of our consumer health care products like sanitizers and multivitamin brands. And we see customers increasing their preference for locally produced products and for diverse sourcing options. Given we have production facilities in the U.S., in Canada, in Europe and India, we are positioned to cater to these evolving requirements. We have a strong focus on quality and compliance. We successfully have cleared 36 USFDA inspections, 169 other inspections since FY '12. And even in last year, all the FDA inspections went without any 483s. We have had no official action indicated the OAI status for any of our USFDA audits. I will now come to the financial performance. Our long-term track record of 15% CAGR in the pharmaceuticals business we continue to maintain. In FY '20, revenues of Pharma segment grew by 13% to INR 5,400 crores. The revenues for pharma CDMO business grew by 13%, the complex hospital generics by 11% and by the Indian consumer health care business by 25%. The recent INR -- depreciation of the Indian rupee has been favorable to us because more than [ 40% ] of pharma revenues come from outside India. The EBITDA margins for the overall pharma segment have improved significantly over the last few years to 26% for FY '20 and have grown at a CAGR of 33% for the last 9 years to have EBITDA this year of INR 1,400 crores for the year ending FY '20. As I said, we are in the process of doing a fundraising for pharma, and we bring to -- and we are looking to [ subsidiarize ] the pharma business and raise funds by issuing a minority stake to a potential investor. With the [ subsidiarization ] of pharma as a stand-alone entity, PEL structure will become easier to analyze and understand. This is one of the big demands that many of you had. The fundraising process is currently on track. We will use these funds to do both organic and inorganic opportunities. We will also evaluate our potential inorganic entry into the domestic branded generics market. Coming to the Financial Services space. The last 18 months have been challenging for the NBFC sector. The sector has been impacted by a system-wide liquidity tightening as well as negative corporate news from large corporates, not necessarily within the sector. This has further worsened due to COVID-19. Although uncertainty remains, we expect that this prolonged crisis will enhance the need and extent of ongoing consolidation in the NBFC sector, only strong, well-capitalized and well-governed NBFCs will be able to withstand the current crisis. In the current environment, liquidity remains a top priority for us. However, liquidity continues to remain scarce for most NBFCs due to heightened risk aversion amongst lenders. While banks have surplus liquidity, they are not passing it on to customers and instead parking it with the RBI. However, investment-grade NBFCs with strong parentage are still able to access funds. We have, over the last year, raised INR 13,500 crores of long-term debt. As on 31st March, we have cash and cash equivalents of INR 8,900 crores in the form of cash and undrawn bank lines. Out of the above, INR 4,000 crores of long-term bank lines have been drawn down since the beginning of the COVID-19 lockdown by us. The capital adequacy ratio of the Financial Services business is at 31% versus 22% at the end of March 2019. As I said earlier, we have conducted a scenario analysis to assess the potential impact of COVID-19 across sectors and our loan portfolio. In retail financing, we see no major challenges in this portfolio. The HFC book is also fully secured and has an overall LTV of 65%. 24% of our housing finance clients have opted further moratorium. Also, we are consciously trying to improve the quality of book by allowing favorable client attrition to happen from a risk management perspective. In the wholesale financing, we are closely monitoring and taking the necessary actions. The real estate sector has faced several major headwinds. While our portfolio is entirely secured, we continue to monitor it closely. Based on our engagement with developers, we are also initiating mitigation actions. In the corporate wholesale portfolio, other than real estate, COVID-19 has a significant impact on the overall economy. Its impact varies across sectors. Within our corporate lending portfolio, we are in active discussions to down-sell part of this portfolio as we continue to reduce single borrower exposures. The impact of COVID-19 is hard to predict as the situation is still evolving, and hence, we should be well prepared for any contingencies. And as a matter of prudence, we have made an additional provision of INR 1,900 crores, which should be sufficient to meet any contingencies. Also, depending on how long the COVID crisis continues, we will be closely monitoring our loan book and evaluating the adequacy of our provision while taking proactive measures to mitigate any potential risks. In the current lockdown environment, we have ensured that there are enough funds with us to meet our and our clients' liquidity needs as well. We continue to support our partners, clients in this volatile market environment by extending a 3-month moratorium to all clients with non-NPS accounts as per the regulatory guidelines. As the lockdown opens, we will ensure that construction does not stop for our existing projects. We are also committed to further diversifying our loan book and making it more granular by doing refinancing down selling to reduce our single borrower exposure, creating fund-based platforms to tap opportunities in wholesale lending. In addition, we are building a fully tech-enabled multi-product lending platform to target significant future growth opportunities, to increase our share of housing finance in our loan book and to build a retail financing multi-product lending platform, which would be digital at its core. The competitive intensity in the retail financing space is expected to reduce due to COVID-19 as some existing players mitigate the space. As we do not have a legacy of a retail financing book, we will incorporate learnings from the current environment and build the book more conservatively. We plan to utilize the next few months to build technology infrastructure and acquire key talent. COVID-19 is a public health crisis with severe economic ramifications. We have significantly strengthened and deleveraged our balance sheet through multiple capital raises -- capital raise initiatives and significant reduction in debt over the last 1 year. Our pharma businesses continued to perform well despite the COVID crisis. In the Financial Services, although liquidity environment has tightened again, but given the strength of our balance sheet, we are able to borrow enough money despite a challenging market environment. Also, we continue to tap multiple avenues to reduce debt and diversify our borrowing mix. And we continue to monitor our portfolio and take necessary actions to mitigate this. As I said, being prudent and conservative, we have created an additional provision for any contingency that the financial service business may face in the face of a prolonged COVID crisis. Keeping in mind the global environment of heightened uncertainty caused by the COVID-19 pandemic on one hand, and on the other, the recent sale of our DRG business as well as the interest of minority shareholders, the Board has recommended a dividend of INR 14 per share for the approval of shareholders in the AGM. The total dividend payout will be INR 316 crores. I think with this, I have given you the highlights of the last year and would welcome your comments and questions. Thank you.

Operator, we'll take questions.

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

As expected, the real estate sector might take some time to pick up. And so cash flows from that business might take some time before they accrue. We have around INR 10,000 crores of repayments lined up over the first 2 quarters. So in terms of liquidity, how are we placed? And what are the other means through which we will be tested in the absence of inflows in the first 2 quarters?

Okay. Anything else?

Apart from that, I just had one more question. The Pharma business inflows to the minority stake sell that will come in Piramal Enterprises Limited, right? And how will that be used?

Okay. I will ask Mr. [ Vipul Takur ] to answer the questions on the liquidity.

I think [ Vipul ] is not on the speaker.

Rajesh, can you -- Rajesh, Mr. Rajesh Laddha will answer that. Can you answer both then, Rajesh, real estate and pharma?

Yes. Okay. So we have about INR 19,000 crores of these payments coming up in first 2 quarters. That's right. But if you had noticed, we carried about INR 4,000 crores of cash and cash equivalents into the new financial year. So that is one part of the thing. After that, we already have got cash inflow from 2 banks: State Bank and Punjab National Bank to the extent of INR 4,000 crores in April. And we have a modest [ success with ] LTRO, where we -- around INR 1,000-odd crore, we already have kind of sanctioned money. And in next 2 to 3 months, we expect further INR 4,000 to INR 5,000 coming from bank lines, different bank lines. In addition to that, we will also be down selling some of the assets where we are in advanced stages of various conversations, which we should get result in again a couple of months' time. So that should take care of our complete repayments, which are due from now till, say, 30th September. We are confident of achieving that. That's on the liquidity position. Coming back to pharma, this transition we are expecting where we have said that we will sort of [ dilute first ], we [ subsidiarize ] the business, the entire pharma business will get [ subsidiarized ] into 100% subsidiary. And then the investor will come into this subsidiary subscribing to 20% of equity -- around 20% equity. And this money will eventually flow into Piramal Enterprises Limited. Does that answer?

Yes.

The next question is from the line of Tarang Agrawal from Old Bridge Capital.

I have a couple of questions relating to the Pharma business. One is, what is the debt in the pharma books, one? Second, what is the goodwill that can be attributed to the business? And third, considering our CDMO facilities from the current levels, what are the additional revenues that we can anticipate to ensure full utilization of facilities?

Yes. Again, Rajesh, please answer the questions on debt and goodwill as well as on the pharma.

Yes. So I think the first question was on the debt level in pharma. The debt level currently in pharma business is about INR 4,500 crores. As I said, when this money comes in, part of this debt will get reduced, and the balance money will flow into Piramal Enterprises Limited. So the debt levels will come down from INR 4,500 crores to something like INR 3,000 crore-odd level post the transaction. As of now, it's about INR 4,500 crores. Goodwill to pharma business would be approximately -- the balance goodwill, which is now left out after DRG transaction, is about INR 1,000 crores, out of which of about 900 -- INR 850 crores to INR 900 crores would be attributable to pharma. And this has got accumulated through various transactions we have done for the last 10, 12 years. This is tested for impairment every year, and there is no issue of any impairment here because the EBITDA levels are significantly higher than this amount in pharma business.

The CDM? Yes, go ahead.

Please go ahead. Please go ahead. Yes, about the CDMO business.

So CDMO, the additional revenues. I mean we may have to do marginal investment here or there. But otherwise, we should be able to manage a growth rate of 15% to 20% for the next few years without significant addition to CapEx. Again, in CDMO, as you know, it varies depending on what type of product or service you need to do. So sometimes you have to make marginal increases in capital expenditure.

So would it be safe to assume for the next 2 years, at least?

Yes.

Yes.

The next question is from the line of Antariksha from ICICI Prudential Asset Management.

In the Financial Services business, particularly, can you walk us through what the achievement on the moratorium phase? As in how much of your book is under moratorium asset guidelines? And have you approached your banks for the liability moratoriums as well?

Yes, Rajesh.

Yes. So as per the RBI guideline, Piramal Capital & Housing Finance Company Limited and Piramal Fininvest, the Boards of both these companies have framed a guideline where we offered the moratorium to all our borrowers. I would say, 85% to 90% of these borrowers would offer the moratorium starting from March till 31st May, unless and until it's again further extended. So on the lending side, we have offered this moratorium and 80% to 90% of these people, as I said, would opt for it. As far as our borrowing is concerned, we have approached all the banks wherever banks have agreed based on their respective Board's policies, we have availed that. But wherever banks have not agreed or their boards have not positively favored the moratorium policy, we have repaid the money to those banks.

I just want to add one thing, that the retail customers -- retail book is about INR 5,600 crores, only 20% have asked for a moratorium. All the others are on track for payment.

Sure. On the liabilities, sir, roughly, what would the spread be like? So would you have got a moratorium only half of the liability from banks? Or would it be even larger?

Banks would be about 65% now. 60 to ...

Moratorium is about 65%, I think.

No, no. How much of that is moratorium [ for the quarter ]?

Moratorium is only for 3 months. That would be about -- total will be about INR 1,500 crores to INR 2,000 crores, payable between, say, 27 March till 31st May. And out of these, I would say about 50% is already paid, wherever the banks have not agreed.

Okay. Okay. And the second one I wanted to ask, sir, you briefly alluded to your wait-and-watch strategy in retail. I just wanted to ask from a medium-term perspective, [ where we see the ] retail business? As in what products would you like to have? What cost of funds would they entail? And some -- what strategy is something that you've thought of?

I think we will share the retail strategy in detail. As I said, we are building a technology platform. We are looking at different segments, and we will talk about it in more detail at the next time.

I add to what Chairman said. There is a lot of work that has happened to build that strategy. But yes, we will talk about it in a quarter from now.

The next question is from the line of Praful Kumar from Pinpoint Asset Management.

Just one question on the consumer business. I think you have done recently more high risk. Can you give us some more details on how do you want to scale up that business, given that the competition would be much more benign and you have enough capital? So some more thoughts over medium term on this business, please?

So as I said, I think we would like to discuss this in much more detail at a later stage. Maybe we'll have a separate session on that. But what we are doing is that we are building technology, digital at the core, and we are building different platforms. We already have a start with some of the housing finance. So we are going to use that infrastructure as well to build this. We are looking at different segments in this. As you have said, that we have recruited a very good team of people who have done this before. So we feel that there will be a significant untapped market potential, and this will create long-term growth opportunities. We'll conservatively build up the book and we are -- all the learnings that we're getting from the environment, we'll take into account. So let us share with you a little more details a little later.

[Operator Instructions] The next question is from the line of Alpesh Mehta from Motilal Oswal.

The first question is, on a sequential basis, we see there is almost 10% kind of a drop into the Financial Services revenue, whereas the loan book is almost flat Q-o-Q. Any specific reason for this?

No. So as we've said before, that as far as the -- what is important in this time is to ensure that liquidity is there and we had said at the beginning of the year that we want to focus on becoming -- the book becoming more granular and more diversified. And therefore, we are consciously bringing down some of our exposures by either down selling them and/or -- that's the main thing. So we are focusing on that. And we are actually going to bring down some of this book in the real estate sector down as well as some of the corporate wholesale book down in the future. I think this is what our strategy has been, to become more granular, more diversified. And it is time to build up the consumer lending space. And especially seeing what the environment has been for the last couple of months, we've also been more conservative.

I agree, sir. I agree on the growth part. It's just that my question is on a sequential basis, loan book is flat versus the revenue decline of almost 10%. And the mix shift has not been that material. So any specific reason for 10%, 12% quarter-on-quarter drop in the revenues for that said business?

Yes, Rajesh, you can answer that. Khushru?

Vivek, would you like to answer?

Yes, Khushru?

Yes. I think you're also seeing a reversal because -- the drop because of the reversal in the income because of the additional provision which we have taken and also some fair valuation loss on a few items.

Additional provision reversal of interest income.

Reversal of -- yes. Income due to increase in stage 3, which we have taken. So some of the incomes on the quarter we have reduced, we have written it back. And also some [indiscernible]. Yes.

Agreed, but that is only 0.6% of the portfolio, right? 1.8% becoming 2.4%, if I’m not wrong, gross NPAs.

Also, there is some fair valuation losses coming in here, as Khushru said, to the second point.

Alpesh, these are broader reasons. These are broader reasons. If you need more detail, you can get back.

I'll take it offline. I'll take it offline.

Yes.

The second question is, can you just give me a split of the real estate lending between the residential and the commercial portfolio, please, out of that 70%? Does that remain 47%, 23% only? Or there is some shift on that?

So the commercial portfolio is INR 3,900 crore in. Out of which -- so let me explain out of -- it's INR 3,900 crores. Again, it is split between under-construction projects, LRD and LAP. And the point here I would like to make is that, today, commercial is going through a lot of stress because of the -- of COVID. But many of our projects, which we have funded are also in mid-stage and also in the sale model. So it's not that -- it's in the lease rental model. So those projects will -- are continuously selling. It could be smaller offices, et cetera. I just wanted to make that point. So it's not necessarily the typical commercial offices where you make and then you lease it out to large corporates and then do an LRD.

Okay. So to answer your question, Alpesh. Yes, the numbers look similar because in those commercial thing, we also include LRD, and we also include hospitality, but that's the overall commercial pie. So yes, from your perspective, the answer says yes, the number is [ the same ].

47, 23 out of that 70, right? That would be the broader mix which is better the fourth quarter?

Yes. So hotel deals are there when we have given loans with some of the best brands, and these are all operational hotels. And then you have some part of which is LRD, again -- yes. So that's the combination there, if that helps you.

Sure. And if I can ask one more question. One is related to the goodwill at the asset level, that INR 10,000 crores of goodwill, that continues, right? There is no change in that. So when I look at the Financial Services asset of around INR 60,000 crores, minus the loan book of around INR 50,000 crores, that INR 10,000 crores is that reverse model?

That goodwill lying at Financial Services arose due to the merger -- reverse merger of Piramal Finance into Piramal Capital, that continues. That's again tested for impairment, and there is no issue whatsoever.

But it doesn't come in PEL consolidated book.

Yes, that gets eliminated at the PEL consolidated level. So there is no impact on consolidated balance sheet.

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

So this the INR 260 crores of additional GNP that you have, can you give some color which account has slipped here?

Yes, basically, before I answer the question, let me just reiterate what Chairman said. That this time, we have additional specific provision and a general provision of INR 1,900 crores. The major reason for the increase in the specific provision is an account in real estate called Marvel where we had INR 208 crores of exposure where we did a onetime settlement with them. They're taking a loss of INR 31 crores. So that is why you see the GNPA going up. So that's one single item which has increased. We have also -- in stage 2, while we are in negotiations for selling of the assets of Mitra Group, which I won't be able to discuss because we have signed the NDA, but we have taken a specific provision of INR 340 crores.

Right, sir. Sir, but -- so does these 2 Marvel group and the Mitra Group, do they explain this -- the INR 260 crores of movement in GNPA?

Yes.

Okay. And then what will be the broad split of this INR 260 crores across Marvel and Mitra?

I think I would ask finance to --

That's okay. That's okay. I think we will take that offline.

Look, Marvel is, out of INR 260 crores -- one second. Marvel is INR 208 crores.

Okay. Okay. That answered it. And sir, on the housing book, I mean what is it that you are seeing? Because since the last 2 quarters, your housing finance, the retail housing finance book has been running down. And this quarter, if I see around INR 600 crores or INR 700 crores, I think it's come down quarter-over-quarter. So what is it that you are seeing there? Any color on that?

Yes. Khushru, you can answer that.

Yes. So let me answer, as Chairman said, that basically -- I think we said it in the last quarter also, that while the focus remains on creating a very healthy housing finance and a consumer finance book, we have changed the strategy. I think we mentioned it last quarter call and basically bringing in more digital and cutting down the cost because today, the cost of funds are high. So what we are really doing in the last quarter is that looking at the headwinds, wherever we feel, one, is that we feel can this portfolio looks risky, we are actually encouraging the portfolio to be sold out to somebody else. And that is why you're finding at one end, the portfolio coming down, and we continue slowly but surely to put in new money into the affordable segment or the mid-market segment where the ticket size is small. So I think you will see this for the next few quarters where you will see that the net growth may not be much because there will always be one element of a down selling or balance transfer and the other would be the new loans being put in, if I've answered your question.

Yes, sir. So I remember your comments from last quarter. But what I was really trying to understand there is, I mean, for how many more quarters do you expect, I mean, this rundown in the retail housing finance book to continue?

I won't be able to tell you how many quarters, but probably, yes, it may -- it will be for some more quarters to come. As you know, in this COVID situation, things are slow, and we want to be very conservative in what we do. Liquidity is the key right now. We are assessing, since we have a relationship with all the developers, major developers in the cities. So looking at the portfolio, which projects are doing -- the construction is on, not on, because at the end of the day, we need to be sure of the completion of the projects. So that's the strategy we are adopting. But it will take a few more quarters where you will see sell down continuously happening, while the new book can also be built. But I cannot really tell you whether it's 3 quarters or 4 quarters.

Sure. So fair to assume that this new technology platform that we are building for our consumer lending, even housing finance, the retail housing finance book you're planning to do through some digital platform going forward?

Yes.

Not only -- yes, not only digital platform. Even the segmentation would be more granular, smaller type of loans, et cetera. But yes, the answer is yes.

The next question is from the line of Manish Ostwal from Nirmal Bang Securities.

Most of my questions have been answered. Only one data point: what is the incremental cost of fund during the quarter?

So as I mentioned earlier, we have been able to borrow the large quantums of money from banks recently, where the borrowing has been done between 9.5% and 10%, incremental borrowing.

Okay. And this hospitality exposure, how do you see the state in that portfolio?

Okay. So let me answer that. We have a INR 2,000 crore portfolio in hospitality. Without a doubt, I think hospitality has been hit the most. There's no doubt. And I think it will take a while, while it will -- we expect at least 18 months for it to recover. Talking about our portfolio, our portfolio, basically, the loans are to all the operating assets. They're not a single asset which is under construction. And all the top brands, whether it's a Marriott, whether it is Taj group, whether it is Hyatt. So -- but we'll have to wait and see how it plays out. The other positive part for us is that our LTVs are low. They are below 65%. But again, we'll have to see -- wait and see how this whole thing plays out.

The next question is from the line of Jignesh Shial from Emkay Global.

Yes. Thanks for the opportunity. Mostly all my questions have already been answered, but just wanted a couple of data points so we are clear. On the liquidity side, can you again repeat how much is the LTRO you could manage to draw this -- or already has gone? And how much is -- you're expecting during next 2 quarters?

So LTRO, as I said, we have something like INR 1,000 crores already sanctioned under the LTRO scheme. This was the LTRO 1. LTRO 2, unfortunately, right now, it's not applicable to the housing finance companies. And therefore, for some strange reason, we will not be entitled over there. So right now, we are looking at about somewhere between INR 1,000 crore, INR 2,500 crore of availment during LTRO 1.

And have I understood correct that the bank moratorium, which you availed, is roughly around INR 1,500 crores to INR 3,000 crores? Is that, my understanding, correct?

Yes. So INR 1,500 crores to INR 2,000 crores, starting from 27th March till 30th June, part of it, yes, we already paid off. However, banks have not agreed to extend it.

As for the moratorium today, it's INR 750 crores, no?

Yes. As you have presented, I understood. This is roughly around INR 1,500 crores to INR 2,000 crores, sir. And now Mr. Khushru has already highlighted the hospitality, INR 2,000 crores at the most. Now here with the way lockdowns are happening, even LRDs would not be doing great at this point of time, right? That is how we are looking at that particular business, number one. And number two, on the housing finance side, I understand that you are gradually -- you have seen some sort of a decline. And -- but now with the rate of interest falling down so sharply, do you see the bank -- the competition from banks would be increasingly becoming challenging for NBFCs or HFCs to maintain? Because if you're borrowing at 9.5% or 10%, the lending would be a challenge, specifically in the housing finance segment. So...

So let me -- the housing finance is not -- we will have -- we are going to look at that survey using technology and digital at the core to go to those clients which normally public sector and other banks don't lend to. So to go to the Tier 3, 4 cities and to go to those who are the nonsalaried class, that's where, with the help of technology, we will identify the right customer, the right credit risk and do it. That's the way it will have to go on.

And on the LRD piece, you have INR 940 crores of LRD today. And while we'll have to wait and see how things play out, if it gets worse, but as of today, this LRD is mainly to marquee assets in BKC of The Wadhwa Group. That's the major one. And the clients there have not asked for any deferment, and they continue to pay the LRD as of now.

Understood. And just one last one. You are saying -- so 2 things actually here. A little more color on your overall real estate book, if you can give it on the areas -- specific-wise, I mean rural-wise or East, West, South and so on, how much you are exposed to? Where you see a bigger risk out there? And number two, since obviously, financing will still not be a challenge, that you could finance them up, but looking at the lockdowns and the migrants moving away and all, would you think, sir, the pain in real sales is going to be much longer than anticipated? What's your view over here? And that's it from my side.

Okay. So first, let me ask you a question. So how long do you anticipate? And then I'll answer that.

Sure. So I've been tracking this since a while. But looking at the way people are moving away and the strength that I see even for the Oberois or Reddy Realty and all, I don't think, sir, any of the projects which we are supposed to be doing in the next 12 months will get a minimum extension of around 6 to 12 months further. So maximum of 18 to -- 12 to 18 months is bare minimum, and that's what I'm expecting for the very good guys, where the probably the Reddys or Oberois are concerned. But I just wanted -- because you have been a vector in this industry, you will be able to give a little more clarity over this.

So in fact, let me start from where our Chairman was talking, that basically, this extra provision of INR 1,900 crores, I'll just link it to that. And every time if you have seen that whenever there has been any tsunami, we have always looked at our book and come back with a stress-test analysis. This time, obviously, it is far more severe, and that's why we had to look at macroeconomics also playing out. But coming to the little more micro and looking at our book, you are absolutely right. We actually did the same assumption, that we will assume that there'll be 0 sales, 0 construction and 0 collection for the next 3 quarters. And maybe then it will just slowly limp back to normalcy. And not again come back to normalcy immediately, it will limp back to normalcy. We needed to do that for 2 reasons. One, as you know, in real estate, we'll need to give money, provide liquidity to the developers to ensure that the project gets completed. Because unless the project gets completed, no stakeholder can get its money back. So that was one exercise which we did. And obviously, then we broke it down granularly. And then today, I can confirm to you that we are prepared to ensure that money, as Chairman also alluded to, that we will be able to fund our developers to continue their construction and complete it. That's something I want to confirm. But what it does -- but what the negative impact of that is it does to the covers, the cash cover and the security cover. Based on that, we did a detailed analysis to find out that -- which are the projects, thanks to the additional requirement of funds because of this COVID and which 3 quarters onwards if there's no sale and no collection, what will happen to the covers? And we found that roughly around 15% of our projects would -- if no action is taken by us with the developer, today would actually fall below 1. And we went about taking various measures. I can give you 1 or 2 examples of that. It could be in a way of additional security of ready flats from these other projects. It could be a way of forcing the developer to bring down the price and also give discount to his existing customers, not to the new customer alone, to bring more liquidity in. Also, in some cases, asking the developer to sell the FSI rather than constructing it or even 1 or 2 cases where we are changing the developer. So all these combinations, which we did, we took actions in the last 30 days. And that's how we -- while we have provided INR 1,900 crores, we actually have resolution plans to ensure that this is a more probable and hypothetical number and a conservative number, if I've answered your question in all respects.

[Operator Instructions] We take the next question from the line of Tushar from Motilal Oswal.

Just on the EBITDA margin for the pharma business, now that we are at 26% and which is even better than the guidance given at the start of the year. And you have mentioned the margin drivers as well. Just quantitatively, if you would like to guide for the next upcoming couple of years in terms of EBITDA margin for the pharma business.

We are not giving guidance for the future, as you know. So I don't want to give -- but you are seeing that the trend of the margins are healthy, and they will continue to remain healthy.

Okay. And if it's possible to share at least in a pecking order in terms of the EBITDA margin for our 3 segments, that is CDMO, hospital generics, consumer health care, in terms of the EBITDA margin in each of the segments.

Yes. So pecking order will be the hospital generics, CDMO. And it varies in CDMO, depending on the services and products and the consumer.

Have you turned EBITDA positive for the consumer health care?

Yes.

The next question is from the line of Rajeev Agrawal from DoorDarshi Advisors.

My first question is, we are keeping a substantial equity of around INR 10,300 crores at the Piramal level. Can you talk about your plan for the same? What do you -- how do you intend to use that equity?

So let us see where we will use it. Now at this moment, I just want to be conservative and see how the situation unfolds. Our view is that post-COVID, those people that have enough equity and which have a strong balance sheet will actually have many opportunities. But I don't want to make any forward-looking commitment today. Let's see how the situation evolves over this COVID, and then we'll be in a better position to answer that. But there are opportunities available, I think, as you know, in both the pharma space as well as in the financial services space as well as other opportunities. So let's just wait and see today, let the situation evolve.

Right. But sir, just clarifying, are you looking at a completely new segment as well? Or will it be within the pharma...

No. Not at the moment. No.

Got it. Okay. The second question is, can you give some details around your top 10 exposures and more specifically to Lodha? I think in the last quarter, we had talked about bringing it down. So how the movement has been in the last quarter and then what is expected to the extent you can share?

So you're very right. We had told you that from INR 3,000 crores, we will bring it down to INR 2,500 crores. And we were on the verge of concluding those deals, and we stay committed. It's just a delay. I think safe to say that by September, you will see the reduction in Lodha. Also, the other thing I would like to talk on Lodha is that not only are we committed to bring it down, the other good part about our exposure vis-à-vis the security, which is the 2x security, which we have, is that half of that, that is 1x security, has actually, thanks to Lodha's continuous construction, has converted into, a ready product. So in today's environment, we have a INR 3,000 crore loan and today, INR 6,000 crores security, out of which half of it is ready inventory now, not under construction.

Got it. And for the others, we are comfortable as well. I mean the top 10 continues to be around INR 10,000 crores. Is that correct?

Yes. So as Mr. Piramal mentioned, we have a plan to bring it down in this next 6 months, whether it is in real estate or in infrastructure, in both. We are working on both of them.

Got you. And then on the corporate loan book, in retail, we have taken a provision of INR 1,900 crores. Can you segregate how much of that is towards corporate loan book? And any more color that you can give on the corporate loan book.

I think I'll give the color on the corporate loan book and then leave it to Rajesh to talk on the provision. I think the corporate loan book is around INR 7,000 crores, out of which roughly around, I mean, just give me a minute, is into infrastructure. Just give me a minute. Yes. So around INR 4,700 crores is in infrastructure, which is mainly renewables. And frankly, in this year, you will see a major of this portfolio getting run down because we are in active discussion right now with a lot of funds who want to take over the assets, which are -- because we do not have under construction renewable assets. We have fully constructed running assets, which, as you know, a lot of private investors have sprung up. So we are in active discussions to sell them off. So this year, you will see a rundown of the corporate loan book. From INR 7,000 crores, it should at least come down by half.

Great and on the provision?

The provision, as Khushru has mentioned earlier, from a specific angle, we have provided some INR 300-odd crores for Mithra already. And apart from that, we -- as has been mentioned earlier, we have created this COVID additional provision of approximately INR 1,350 crores, even for the assets which are standard and maybe following -- as standard accounts. So that you can take approximately 3% to 4% provision even on standard assets.

So just to clarify, the INR 1,350 crores is the provision to the corporate loan book, is it?

Sorry? No. No. No.

How much of the provisions is to the corporate loan book?

We don't have segregation of provision between corporate and noncorporate. The point I'm making is out of corporate, Mithra is one large account where we made a specific provision of approximately INR 300 crores, INR 325 crores. So that's specific provision against one asset. Apart from that, out of this INR 1,900 crores, INR, 1,350 crore is additional provision, which then gets attributed to all the assets, right? So that will be about, as I said, about 3% of the total, say, loan book, corporate and noncorporate.

The next question is from the line of Aditya from Citigroup.

On the additional provisions, could you just clarify? So is all of the INR 1,900 crores in addition to any RBI-mandated requirement due to the moratorium? Or a part of this is because a moratorium was given, that some provision had to be made?

No. There is no RBI guideline to provide anything incremental due to moratorium. That only applies to banks, I think, not to NBFCs and HFCs.

Okay. And you mentioned the 80% to 90% of borrowers opting for moratorium. I assume that was by numbers. So what is the number by percentage of book?

So INR 1,500 crore was the moratorium asked.

No. I'm asking on the lending side.

Yes.

So INR 1,500 crores of the total AUM is people who have asked for a moratorium.

Moratorium, that's right.

That's on the retail. Is that right?

Wholesale. Wholesale. Wholesale.

No. No. INR 1,500 crores worth of installments, which were due, have been asked as moratorium, not INR 1,500 crores of AUM.

Okay. Is it possible to tell that in AUM terms?

The entire AUM -- so retail, as we said, 20%, 25% of the retail guys have asked. That number will be large. This 20%, 25% will be in -- for retail. And then on the wholesale side, by value, INR 1,500 crores would be...

Developers have asked for a moratorium today.

Moratorium. Yes.

Sorry, your voice broke a little. What did you say on the wholesale side?

On the wholesale side, most of the developers have asked for the moratorium.

Got it. Okay. And on the corporate side, sir, you mentioned down-selling on retail loans and also a bit on corporate. And you mentioned good demand for renewable assets. So just want to understand, is there a strategic direction change of doing less of corporate loans going forward? Or is it more of a tactical call right now?

No. Right now, as Mr. Piramal mentioned, we are all focused on bringing the book to a granular level. So I do not think there is any strategic angle to it. But right now, we want to make our book more granular, whether it's in real estate or in corporate or even in retail for that matter, to make our ticket size lower.

Understood. And just lastly, the stage 3 coverage of 40%. So does this reflect our current view of loss-given default? Or should we look at this as still having plenty of buffer over the actual loss-given default?

No. This is based on the current view of LGD.

The next question is from the line of Ritika Dua from Elara.

So thank you for this 2 clarifications on something that you've already shared in the call. One, could you maybe help us understand more on the Marvel deal, were you the sole lender? And if you do not mind sharing again, what was the issue? And how have we come out of it in terms of maybe selling down and maybe providing extra as well?

In the projects with Marvel, we were -- as you know, in real estate, we are always the sole lender 99% of the time. And in Marvel, the projects where we won, we were the sole lender, number one. The way we had to -- we did the settlement was that we needed to complete the project, and we wanted Marvel to bring in money. So he brought in an investor where the monies came in as equity to complete the project, and we agreed out of INR 208 crores to take a write-off of INR 30 crores.

Okay. And sir, did I get the second clarification which I wanted, did I get this correctly? To one of the questions which you were asked earlier on the call, you said that even in the retail, the reason why the retail book has also come off is because of the sell-down. And then I think was it correct that it was mentioned that we thought that there were certain risky loans that we wanted to take off the books and we want to only focus on affordable and the less riskier ones. What are the risks here are we talking? Are we talking about a commercial exposure here in the -- in this retail book? Or what was the risky bit that we were sharing?

Yes. As you know that our average ticket size when we started was around INR 75 lakhs, INR 80 lakhs, we want to bring it down to INR 20 lakhs, INR 25 lakhs. Also, based on the profile of the customers, what is happening and based on our rate, so we are encouraging, I cannot speak much on that, but we encourage a lot of our customers to move to other, and we have been pretty successful at that.

Okay. So you mean more of from a profitability standpoint, but that's -- okay. But what I understood, that you were saying on the risk side, so it's more that you want to maybe go on to the granular bit that you want.

No. No. It's more to do with the early warning signals. As you know, COVID is having a lot of challenges in various industries. So whatever our early warning signals throw up by the risk, so certain categories, we would -- we encourage our customers to move to other banks and institutions. But I can't speak much about that right now, yes.

The next question is from the line of [ Umang Gandhi ] from Financeology Asset Management.

I want to direct the question to Mr. Khushru regarding the Mithra Group. Can you tell us what is the total exposure of Piramal Enterprises to Mithra Group as on 31st March?

So our exposure is roughly in the range of around INR 1,270 crores, including accrued interest.

And you have taken provision of more than INR 300 crores on it, right?

Yes. That's right.

And second question is, what is the median time line of all the projects which you have sanctioned for completion, out of 5 years, say, 18 months or 36 months, out of 5 years?

I think averaging our 330 projects and giving you an answer for me would be difficult.

But if you take farthest one, the farthest one?

I think probably, we'll do some working and come back to you. But it is impossible to guess whether it's 18 months or 33 months or 36 months for 330 projects of ours.

The reason for the question is that I was following Mr. Vikas Oberoi on the concall of [ the RBI as well ]. He is saying that based on the demand/supply situation right now, there would be a huge gap between the demand and the supply in the real estate sector, especially in Mumbai? So how are we placed? How our developers placed? That is what I'm asking because the demand will be only for completed projects, not incomplete projects.

I think I already answered that question while -- when I spoke about how we have gone about doing the stress-testing and liquidity provision and our cash covers and the resolutions to that. I think I already answered that. If you still want, we can do it off-line.

The next question is from the line of [ Kashyap Prakhar ] from Credence Wealth Management.

Sir, my question is, there has been some conversion of loans for our [indiscernible] subsidiary into equity shares. Is there any -- is it like distribution of equity or what? I just want to get an explanation on that.

I think you are referring to conversion of ICD into [ FC ]. So as Mr. Piramal had explained in the beginning of the call, that whatever this write-off or additional provisioning, we have taken worth INR 1,900 crores, which has been provided for. Against that, to maintain the equity into Financial Services, we have allocated or we infused equity worth of INR 2,000 crores into Financial Services business. And this is part of that.

The next question is from the line of [ Ritu Shah ] from Sameeksha capital.

Actually, my questions have actually already been answered.

We take the next question from the line of Viraj Mehta from Equirus.

Sir, what I wanted to understand is, we -- obviously, looking at the scenario, we have been in continuous capital raising mode over last 1 year and shoring up our liquidity. So if Piramal as a company, over the last 6, 7 years, for the first time in last 1 year, has been more on the liquidity challenge, as in trying to shore up other liquidity rather than growth, when can we see the switch turn on in terms of the -- from challenge of growth mode?

So really, let's COVID settle down, let's the environment improve, and then I think there will be many opportunities for growth. Today is not the time to talk of growth. I think today, we have to be conservative because every day, if you've seen the projections for COVID, seem to change very, very widely. So I would not think that this is the right time for growth. But once you've come out of this crisis, those who are strong, those who have a strong balance sheet, who have liquidity are the ones that will grow. So that's our strategy. And I think you would appreciate that -- and nobody expected COVID to take place. But we were seeing that there was such an uncertain environment all of last year because every day, there will be some new negative news that we thought it's better to be conservative and raising more funds. And that's what has helped us even today. So I can only say that we will -- we are watching closely the environment. And as and when the environment improves, we will be -- you will see it also.

Sir, just last one question. Apart from whatever provisioning you have already taken, what -- do you expect -- how much of the incremental hit do you expect both from your -- some of your wholesale lending?

I mean over this provision, we hope there will not be. That's how we've taken this provision.

We take the last question from the line of Abhijit Tibrewal from ICICI Securities.

I just had one question. Would it be possible to give some kind of a breakup on this INR 1,900 crores of provisioning that you would have done? Earlier in the call, you have used it to something like INR 1,350 crores that you have done on standard assets. Is some kind of a breakup available of this INR 1,900 crores of provisioning?

What I think we are showing in our analyst presentation is total provision against Stage 1 and Stage 2 assets, which is -- approximately now stands at about INR 2,500 crores. And Stage 3 is about INR 480 crores. So that's the kind of detail we are sharing.

Right, sir. But no such breakup available on the INR 1,900 crores that you have done? In other words, what has been provided for towards some of the stress-test or something that would have slipped into GNPA.

These 3 we are giving -- these 3, we are saying 40% PCR, and the total Stage 3 assets are about INR 1,200 crores.

Fair point. Fair point. So this INR 1,900 crores that you would have done in this quarter, so INR 1,350 crores is what you said were provided against the standard assets?

Yes.

And the remaining -- I mean, this is what I'm trying to understand, the remaining INR 550 crores?

The INR 1,300 crores plus INR 300 crores, about INR 1,700 crores is, out of INR 1,900 crores, is for Stage 1 and Stage 2 and incremental INR 210 crores for Stage 3. And you already were carrying about INR 260 crores, INR 270 crores of Stage 3 provision earlier.

We'll take that as the last question. I would now like to hand the conference back to Mr. Hitesh Dhaddha for closing comments.

Thanks, everyone, for joining the call. Hope you all and your family remain safe in this COVID environment. Please feel free to reach out if you have more questions. Thank you.

Thank you very much. On behalf of Piramal Enterprises, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.