Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Q1 FY '21 Earnings Conference Call of Piramal Enterprises Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations Officer, Piramal Enterprises Limited. Thank you, and over to you, sir.

Hi, good evening all. Hope you are all safe and secure given the current environment. I am pleased to welcome you all to call to discuss Q1 FY '21 results. I was saying our results have -- results material have been uploaded on our website, and you may like to download and refer 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 our call today, we have with us our Chairman, Mr. Ajay Piramal; Nandini Piramal, Executive Director of PEL; Mr. Rajesh Laddha, Executive Director, PEL; Mr. Khushru Jijina, Managing Director of Piramal Capital and Housing Finance; Mr. Jairam Sridharan, CEO, Retail Financing; and 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.

I hope, dear friends, you and your loved ones are safe and in good health. This is indeed a challenging and unprecedented time for all of us. Although economic activity was materially impacted, it is gradually restoring as lockdowns have started easing. There are some early signs of recovery in capacity utilization, production and demand across industries like electricity, cement, steel. Pharmaceutical industry, obviously, is in a different category, where demand has not been materially affected and production levels have come back to full normal. We expect the economy to rebound in a U-shaped manner over the next 3 to 4 quarters, provided there is no major relapse in the COVID situation. The severity and the longevity of the pandemic impact still remains uncertain. In the backdrop of this unprecedented environment, we have delivered a resilient performance during the quarter. Revenue declined by 8% year-on-year to INR 2,937 crores. Net profit grew by 11% year-on-year to INR 496 crores. Until the environment normalizes, we remain focused to maintain our balance sheet strength and to ensure enough liquidity. Over the last few quarters, as we have been repeatedly saying, we have taken steps to strengthen our balance sheet. We brought in INR 14,500 crores of capital in FY '20 through various capital market transactions, exceeding our commitment of INR 8,000 crores to INR 10,000 crores that we had said during the year. Our equity base increased from INR 27,200 crores to INR 31,000 crores in June -- by June 2020, and we have significantly deleveraged our balance sheet. Our net debt, which in June 2019 was INR 52,000 crores, has come down to INR 38,000 crores in June 2020, and our net debt-to-equity stands at 1.2x as of June 2020 versus 1.9x in June 2019. During this quarter, we announced our fund raise in the pharma space. Carlyle Group agreed to invest fresh equity of $490 million for a 20% stake in Piramal Pharma, making it one of the largest private equity deals in the Indian pharmaceutical sector. All the pharma businesses are getting integrated into a subsidiary of PEL, Piramal Pharma Limited. The business was valued at an enterprise value of $2.775 billion, with a potential upside of up to $360 million based on FY '21 performance. This deal will further strengthen our balance sheet and provide us with a war chest for the next phase of our pharma strategy, that is to accelerate our organic and inorganic plans. The deal is supposed to -- is expected to close in this calendar year. I think, once again, the successful fund raises confidence that, amidst the whole crisis of COVID-19, the inherent robustness of our business model and the measures that we have taken so far. In fact, in 2010, we -- our domestic formulations business was valued at $3.8 billion. And now in the next 10 years, we have been able to deliver value anywhere between $2.77 billion to $3.1 billion. So again, the ability to build businesses and create value for our shareholders. Over the last 1 year, we've been able to generate inflows of INR 35,680 crores through multiple borrowings and equity transactions. In the first quarter of the current year, despite significant challenges due to COVID-19, we have raised INR 9,600 crores of long-term borrowings. We are, as we have said before, gradually shifting our borrowing mix towards long-term funding sources. The CP exposure decreased by 95% from INR 18,000 crores in September 2018 to INR 910 crores as of June 2020. Our share of bank loans has increased from 55% in June 2018 to 68% in 2020. As a result, the positive ALM gap has significantly improved in recent quarters, especially in the 6-month and 1-year buckets. We continue to remain very well positioned to meet our debt obligations in the future. To comment on the financial services, RBI's financial stability report in July suggests a sharp rise in NPAs within the financial sector. This could intensify risk aversion amongst banks, which account for 70% of financial assets. Well-governed and large NBFCs and HFCs will have to ensure smooth credit flow to the economy. Also, consolidation to accelerate in the NBFC sector due to COVID-19, well-capitalized, well-governed entities will survive and gain market share in future. Stronger NBFCs complement banks and play a critical role in reviving India's growth. What are our strategic priorities in financial services. We aim to build a diversified financial services business across wholesale and retail financing, and we are continuing to make progress on our strategic priorities. First of all, we are increasing the granularity of the loan book and reducing single borrower exposures. In the current year, we are not chasing growth, but will focus on making the book more granular. Our exposure to top 10 accounts reduced by INR 4,000 crores in the last year from INR 18,400 crores to INR 14,400 crores. We made a conscious decision to reduce our single -- large single borrower exposure to below 15% of our network. And only 1 account of ours is greater than 15% of the network. As we mentioned during our Q4 call, our risk management and asset monitoring teams, along with our Chief Economist, conducted a scenario analysis at the onset of COVID-19 outbreak. As a part of the analysis, we stressed the sectoral impact of COVID-19 under a stressed scenario. These sectoral impacts have been applied at the deal level to assess the impact of -- on PEL's portfolio. The stressed scenario assumed no sales, no collection and no construction activity for the first and second quarter of the current year, followed by minimal pickup starting in the third quarter. The outcome of our scenario analysis shows that 88% of the wholesale real estate portfolio had a greater than 1 security cash cover under the stressed scenario. The situation has played out relatively better than what we assumed in our sensitivity analysis last quarter. Although construction activity got delayed in April and May, which has gradually resumed and workers have started to return to construction sites. To preserve and replenish security and cash covers for certain deals, where the security cover went below the threshold, we've initiated deal wise resolution plans. Some of these measures include change of developer through a joint development agreement, equity infusion by the developer by bringing in additional security from assets which were not mortgaged to us before and last mile funding. Besides this, we are also building a multi-product retail lending platform and the CEO of our retail lending platform, the new CEO, Jairam is here as well with us today. Retail financing, we believe, offers several long-term growth opportunities and has a significant untapped market potential. We expect consolidation to pick up in this sector as well due to the COVID-19 and competitive pressures. We are incorporating learnings from the current environment and shall build the book conservatively. In the current year, we will focus on laying the foundation of the business. That is focus on processes, policies and people. For the next rollout phase, the areas being worked upon are in product strategy, we plan to launch a combination of products over FY '21 and '22. In FY '21, we will focus largely on secured lending by testing some of the other lending products. Also, pivoting housing finance from affluent housing to mass affluent and affordable housing. In the geography, we will focus on Bharat that is small and mid-market India, with a population from anywhere from 10,000 to 4 million. We have identified markets based on potential and historical risk performance. Our channel strategy will be digital at the core, augmented with physical challenges for customer acquisition and collection. We also continue to selectively tap superior risk reward opportunities via fund-based platforms with like-minded partners. We have entered into JV partnerships with several large investing partners such as CPPIB, CDPQ, APG, Bain Capital and the International Finance Corporation to tap high-yield wholesale opportunities through a fund structure. In addition to all this, in the present environment, we believe that we should provide for sufficient provisioning for contingencies. Our GNPA ratio at 2.5% as of June 2020 versus 2.4% as of March 2020. In the fourth quarter last year, based on our scenario analysis, we created a INR 1,900 crores of additional provisions. The overall provision now stands at INR 3,000 crores as of June '20, sufficient to meet contingencies from COVID-19. The non-NPA assets have a provisioning of 5% as of June 2020. Provision against Stage 1 and Stage 2 loans has increased by INR 1,631 crores in the last 1 year. That is from INR 887 crores as of June '19 to INR 2,518 crores as of June '20. So total provisions as a percentage of loan book now stands at 5.9% and if I look at provisioning against wholesale loans, it is higher at 6.3%. As you are well aware the reserve bank allows for 2 moratoriums, moratorium 1 and 2. So as of June 2020, I want to highlight a few aspects about the loan book. First, and the most important, our loan book is entirely secured; secondly, we have created sufficient provisions in quarter 4; and thirdly, we have already initiated proactive corrective measures to mitigate potential risks. As of June '20, the moratorium on our wholesale loan book 67% of the AUMs was under moratorium and in the retail loan book, 25% was under moratorium. Our capital adequacy ratio for the overall financial services business is at 33% as of June 2020. And our net debt-to-equity of the financial services business declined from 2.2x -- declined to 2.2x from 4.4x as of December 2018. Now I would like to comment on the pharma business. In the pharma business, we are well positioned despite the pandemic related challenges. Pharma is playing an important role in these tough times, making it one of the safest and most resilient industries. The underlying medical conditions that drive demand for our products and services have largely remained unchanged. We also see some potential upside across our businesses from the current environment. We have taken several measures during this period. First, securing our supply chain through alternative vendor development and backward integration activities. That had actually started about 2 years ago, and we've accelerated it now to ensure business continuity across our 14 manufacturing sites across 3 continents; North America, Europe and India. And thirdly, to ensure the safety and well-being of our employees, which is our top priority. Our pharma performance in the first quarter we achieved nearly 80% (sic) [ 90% ] of our Q1 FY '20 revenues at INR 1,038 crores despite challenges faced by COVID-19 pandemic in the first -- in the initial part of the quarter. This reflects the resilience of our business model. The CDMO and Indian consumer health care businesses delivered in line performance for the first quarter. The complex hospital generics there were some near-term demand challenges in inhalation anesthesia as surgeries were suspended across many geographies due to concerns related to the pandemic. Since then, we have found that the surgeries have now bounced back. And in fact, the backlog of surgeries for the first couple of months in the quarter is now being made up. Volatility and sales and changes in procurement patterns in the short-term in nature, performance is expected to normalize over time. In line with our strategy of also growing inorganically, we've recently acquired a solid oral dosage drug product facility in the U.S. Our excellent track record of quality and compliance continues. In conclusion, I would say, in the last 1 year, we've made significant process on -- significant progress on our strategic priorities. We've significantly strengthened the balance sheet and deleveraged the business, simplified the organization structure and initiated proactive actions and built solid provisions for any contingency. I believe we are now at an important inflection point. Both our business segments have clearly defined road maps in place to deliver sustainable long-term performance. We have been able to adapt to the new normal, and in several ways, have transformed the way we do business. We continue to make further progress on our strategic priorities, and we are confident that PEL will emerge stronger after the COVID-19 crisis. Thank you. I hand it over to Hitesh.

Yes. Thank you, sir. Operator, would you like to open for questions?

[Operator Instructions] The first question is from the line of Abhijit Tibrewal from ICICI Securities.

Yes. I had a couple of questions. I would like to ask them one by one. So firstly, was there any sell-downs in the quarter or I mean, if I were to ask, what is the quantum of unit sales that you would have marked for sell-downs.

Yes. Why don't you ask all your questions, one by -- I mean, all -- let me answer them. Otherwise, it'll become a conversation. Do you have any other questions?

Yes, sir. So 2 more questions that I had. The second question is more around your retail financing strategy. I see that you have provided here 2 new slides in your presentation deck as well, and you also elaborated. But can we have some more tangible color around which are the product segments you are planning to enter? And then the last question, in your throughput presentation, Slide 66, you've given out your AUM basis different categories, this is green, yellow, amber and red categories. Can we get some update? I mean, in terms of now in Q1, given that a lot of economic activities have resumed, and I'm sure construction has started at a lot of your projects. I mean, how would you kind of classify your AUM under those green, yellow, amber and red categories?

So I will ask by Mr. Jairam First, giving you an update on the retail. And then Mr. Jijina will talk to you about the wholesale sell down and AUM.

Sure. Thank you, Abhijit, for your question. This is Jairam here. So you're absolutely right. We've given a little bit more information this time on how we are proceeding from a retail perspective. Firstly, I want to emphasize the point that the Chairman made in his opening remarks, which is that for the retail business, FY '21 is very much a year of foundation building. It is not a year for growth. This is the year in which we want to put together our basic infrastructure of how we want to do retail. You asked 2 questions about what products we are doing and what are the activities we are working on right now. The products that we have chosen to do in FY '21 from a rollout perspective, are 4 product categories; mass affluent housing, affordable housing, loan against property and small business lending. All 4, you will notice are secured businesses. This is a year in which we are -- we want to focus from a rollout perspective very much on secured business lines. So that's what we're going to do. We're going to do a little bit of experimental volumes on some of the other businesses. But from a rollout perspective, it will all be secured. And our intent is to go live with these multiple product categories just around the Diwali season time line. So that's what we are working towards. Now as far as the activities that we are working on. Again, Chairman alluded to this in his remarks, but just to expand on that for a moment, there are 4 categories in which activities are going on right now. Products -- sorry, policies, people, process and technology. So I give you the product point first, let me give you the other 3 Ps. So policies, which is obviously the credit policy, risk management architecture, the credit risk models that we need to build, et cetera. That's 1 piece of work that's going on. The second is process, which is what is the underlying core process the digital and digital processes that we're going to have and what is the control infrastructure that we're going to have. That's the second piece we'll work on. And the third piece, of course, is super important is people. Putting a high-quality team together, both at the senior leadership level as well as at the execution level. That's an area that we're working on. Finally, technology, which is what is the underlying architecture as well as the front end customer journey architecture. So those are the 4 things we're working on. With all of this our intent is, as I said, around the sort of Diwali season or somewhere around that time line, without putting too fine a point on it, to go live with 4 secured product categories with a little bit of experimentation around some of the other businesses in roughly 15 to 20 towns. That's the plan right now. So I hope that answers your question. Mr. Jijina?

Yes. So I'll answer both your questions on sell-downs and the sensitivity, which you spoke about. Let me first talk about the sell-downs. As the Chairman also mentioned, we are focused on not only infusing liquidity like last year by doing various sell-downs, whether it's -- mainly through refinance like last year. We have a plan in place this year itself to bring in liquidity during the current year. In this quarter, however, the things have been slow because of COVID. You will see, whether both in real estate and in the non-real estate, which is the renewable sector, we are working and at are fairly in different stages with other lenders for refinancing us and you will see the impact of that happening in September quarter. Coming to your point on green, orange, yellow, I think post COVID, the way one has to look at it is very different. I think Chairman alluded to that. Let me just explain what he meant by that. If you recollect last year or almost 18 months back when the crisis of IL&FS had broken out, we had looked at sensitivity in a very different way. I think we have to relook at everything post COVID. And I think last time also we had mentioned, but at -- even at the cost of repetition, let me tell you that as soon as the pandemic started, we, along with the business team, the risk team, the asset monitoring, all of us got together to look at each of our assets, which is the loan to the borrower, to see what would be the impact of COVID on it. So what do I mean by that? So we at that time assumed that this whole year, the first 2 quarters will be actually a washout. It will be -- there will be 0 sales, 0 collection, 0 construction and only a minimal construction/sales/collection in the third and the fourth quarter. Why did we do that? Because we needed to test the ALM and the quality of our portfolio to enable us to take corrective actions at an early stage. So what are the findings out of that? So based on those assumptions, our findings was that 85% of our deals were still having a cover of more than 1x. Based on the findings which we got, we went about -- I think Mr. Piramal mentioned, but I'll repeat it for the sake of everyone once again. And in the last few months, the teams all jointly have really gone, I would say, loan-by-loan with each developer to ensure that we get additional security and cover so that the loan becomes safer. I would broadly divide it into 5 parts, though Mr. Piramal spoke about it. One was, I would say the change of developers we did. In certain cases, we changed the developers. We brought in a stronger developer. Again, I wouldn't say it was just to move the name in the books. The loan has actually shifted to the developers with their corporate guarantees. So it's just not a shift in the name. The second, which is the most important, which we did, I would say, the maximum was along with the developers, we actually got together and changed a lot of project scopes and economics of those projects. For example, if a building had a different size of an apartment, we changed the sizing, we looked at the cost of construction. We looked at how to do barter, et cetera. In a project in Bangalore, the last phase, which was remaining was apartments, we moved it to plotted, and I'm happy to tell you that, in fact, we have lost that project in plotted and actually started selling. The third was wherever we felt that the equity infusion needed to be brought by the promoter, we got it done through land sales of the promoter, which was not mortgage to us. Again, here, through that, we could bring in equity to improve the cash cover. Smaller projects. In fact, we actually were successful in doing a few resolutions where we got resolutions settled with a few developers. Also, last but not the least, we got -- where we didn't want to increase the exposure, we got last mile funding through various AIFs or even SBICAP, et cetera. So these are the various detailed exercises, which was carried on by the team to ensure that post COVID, our quality of the book and the asset cover remains. I'll take another minute for the benefit of everyone because this must be the question on everybody's mind. However, if -- so while we took a very negative view of this entire year, as I mentioned that in quarter 1 and quarter 2, we assumed 0 sales, 0 collection and construction and, in fact, dropped the prices by 10%. On the ground, I want to share with everyone since the first quarter is over that what we have seen in actuals for our portfolio. So if I talk about the sales, the sales -- while the sales in the month of April and May were 10% and 22% of pre COVID sales, respectively, the sales in the month of June for us was actually 40% of pre COVID sales. I'm again repeating this is against our assumption of 0. The maximum sales are actually taking place in affordable and mid-market segments. Needless to say, the sales in the luxury segment continue to be sluggish, but I would like to remind the audience that 90% of our portfolio is in affordable and mid-market segment. Talking of collections, even the collections have showed an upward trend like sales, the collection in the month of June was 40% of our portfolio of pre COVID sales. Talking of construction, as on date, I'm happy to inform that 74% of our construction sites have started. During the pre COVID days, we had around 24,000 laborers on the site. And as on date, we already have around 44% to 45% of laborers on the site. I hope I have answered your question in detail.

Yes, thank you for a very elaborate explanation. If I might ask just 1 more question. In your gross stage 3, were there any new slippages in the quarter and is there any resolutions?

Sorry, I didn't get, you were not clear.

In your gross stage 3, in your GNPA book, were there any new slippages in the quarter? And if at all, there were any resolutions during the quarter?

No, there were no changes, except for 1 where we -- we actually did a resolution, which is in the non-real estate space, we -- under our emerging corporate lending, we had a loan along with a consortium of lenders to -- for a solar project of IIFL which has been now resolved by Embassy Parks taking over that project. We just are waiting for the legal agreements from IIFL. The deal is already done. The -- why it has been put in stage 3 is because as per the deal, the INR 75 crores principal comes back. The interest up to December has been fully serviced. But from January to September, all the consortium lenders, including us, would have to foreclose the interest. And we have, I think it's around INR 7 crores to INR 8 crores is what we have now taken on the state.

[Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on the pharma side, why the EBITDA margin is less for the quarter gone by but did we have any benefit of the lower raw material cost? And how do you see that panning out over near to medium term?

Yes. Vivek Valsaraj, can you answer that?

Yes. So no specific change in the raw material cost per se. The overall EBITDA margins have been lower because of the adverse mix as far as this quarter is concerned. But raw material costs -- cost is largely the same. And even on a full year basis, we don't expect a very significant change as well as raw material costs are concerned.

Okay. Great. Secondly, just on this ...

I may request everybody, please ask all your questions in one shot, otherwise, it becomes very difficult. And I want everybody to get a chance. So please ask all your questions in one shot.

Yes. Sure.. Just one more from my side. On this solid oral dosage -- that product facility, what kind of asset turnover can be expected, eventually the turnover?

We expect revenues to go close to $35 million to $40 million over the next 3 to 4 years from this new facility that we have acquired.

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

My first question is around -- you have sold 20% to Carlyle. So can we confirm that, that 20% of the cash that will come, will come to PEL and not into the pharma business? So just I wanted to understand the valuation in there for the question. The second question is if you can talk about that you have cash cover of more than 1 in 88% of the portfolio. So can you please confirm in the remaining 12%, how much of that remaining 12% has been addressed? And what still remains under stress. And then if you can just talk about your collection efficiency in Q1 and how it has changed month on month? Mr. Jijina talked about how the projects are progressing, but just from a collection efficiency perspective, if you can give us more details. And lastly, on the stress scenario. You mentioned that in Q3, things will pick up gradually. So can you just elaborate what exactly are your assumptions in Q3 and Q4?

Yes. I think, first of all, just talk about the pharma, the funding, Rajesh, and Khushru, you can take the question on the Q3.

Yes. So the Pharma Carlyle transaction, the money from Carlyle will come into a subsidiary of Piramal Enterprises Limited, which is Piramal Pharmaceuticals Limited, that's INR 3,700 odd crores. Out of which close to about INR 3,400 crores will go back to PEL, Piramal Enterprises Limited and that money is going to be used to deleverage PEL's balance sheet further. Khushru?

Yes. So on the -- on your 2 questions, what is our collections, I actually mentioned it, but I'll repeat it for the benefit of everyone that post COVID, in the month of April, the collections from our portfolio was actually only 10% of what we used to collect in the pre COVID days. It improved to around 20% in the month of May. And now in the month of June, it has crossed 40% of the collections of the normal pre COVID. If that answers your question. That would be on the collection. Again, let me repeat, in our sensitivity analysis, we have taken 0 collections for the first 2 quarters. For the next 3 or 2 quarters, which is Q3 and Q4, you asked this question, what exactly we meant so let me explain to you whether it is sales, collections or construction activity, we assumed around -- it was ranging between like collections was around 20% only we assume. So just to bring home the point, we are already at 40% in June itself. In quarter 3, we have assumed only 20% of the sales. And that too we assumed that once construction starts, the sole receivables as per the slab cycle goes up, we will get money. So that is what we have assumed for Q3. And for Q4, we have assumed around 50% of the normal collections, which we used to get pre COVID. Did I answered the question.

Yes, yes, that's very helpful. Actually, I have just a follow-up on the Piramal Pharma, where we are seeing that the INR 3,700 crores goes to the Piramal Pharma. So should I assume the enterprise value, how it has been valued, is that closer to the INR 15,000 crores or INR 20,000 crores based on the pre-money versus the post money. It's not clear that the INR 3,700 crores is coming into Piramal Enterprises and then going to Pharma or the other way round?

As I said, it will go as primary infusion into Piramal Pharma Limited. When we are transferring the business from Piramal Enterprises Limited to Piramal Pharma Limited, which is investment into overseas subsidiaries of pharma and also the business which is line, direct business, India's direct business, which is a line in Piramal Enterprises Limited. When you transfer this business from Piramal Enterprises to Piramal Pharma, there will be a payable entry, which will get created because this business will then transfer at a particular value. The money, the primary infusion is going to happen in Piramal Pharma Limited, the subsidiary. And through this payable entry, the money will go to Piramal Enterprises Limited. That's the mechanism.

So also other way to understand this is that this money that will come in will lead to initially our deleveraging, but it will create a watches for Piramal Pharma to look for organic and inorganic opportunities in the future. I mean you can't have acquisitions happening on day 1 when the money comes in. So the acquisitions will -- we will look at from the opportunity perspective as we move on and that watches will be utilized for both inorganic area.

Right. So my main point is that you've got ...

If you want, you can clarify this later. Otherwise, we'll just going to one on one conversation, if you don't mind. I think, please, there are others.

We can address it separately and answer all your queries on this particular.

The next question is from the line of Prashant Nair from Citi Research.

Just a few questions on the pharma side. So firstly, can you -- let us know what the constant currency growth would -- or decline would have been in this quarter on a year-on-year basis? That was the first question. The second question is, how do you see the business trajectory over the rest of the year, particularly on the injectable side because we understand that was the segment, which is taking the biggest challenge currently. So are you seeing any signs of a pickup June and July, by the end of June or are we still waiting for some traction there? And the third question is just a clarification. So the oral dosage facility that you acquired in the U.S., that is primarily for the CMO outsourcing business? Or are you looking at other opportunities as well, like generics, et cetera?

Nandini, can you just answer the pharma?

Yes. The oral dosage business is primarily for CDMO. We expect to have -- we have a current contract, so with the current customers, and we expect to grow that business as said to $35 million to $40 million revenue over the next 3 to 4 years. In terms of the injectable business, in terms of inhalation anesthesia, yes, there has been a slowdown as surgeries have been stopped. But whatever -- but the underlying demand hasn't gone. So wherever the lockdowns have eased and where hospitals have begun work, again, we're seeing actually a very good bounce back. So I think overall, over the year, we are actually quite confident in the business. We think there will be some short-term volatility, but we are pretty confident for the overall year.

And the first question was on constant currency sales change this quarter?

Yes. So in constant currency, the sales were down about 16% versus Q1 last year.

The next question is from the line of Alpesh Mehta from Motilal Oswal.

So the first question is to Mr. Jijina. During the quarter, there was a proposed guideline by RBI regarding qualifying criteria for HFC. So are we compliant for that? And if not, how do we plan to fulfill the compliance requirement? That's the first part. Second question is, there seems to be a sharp drop into the funding cost for the financial services business. Any large ticket high cost borrowing got repaid during the quarter and is this sustainable? And largely to Jairam. If you can throw some light, what kind of differentiating products that you plan to introduce in the market because some of the products that you mentioned are already a bit crowded, even though the opportunity is large, but the products are a bit crowded. So what would be the differentiating factors for the proposed consumer financing business?

So I'll take the first 2, maybe.

Yes, Rajesh.

So I think as far as HFC, our RBI guidelines around HFCs are concerned, we are pleased of those guidelines. First of all, we are in the last stage right now. Secondly they are also going to give time to HFCs to comply with that. We have initially done our homework, and we will be comfortable complying with those guidelines as and when they get applicable to Piramal Capital. We don't hear a challenge. We will be fully complying with those guidelines. Interest rate question, yes, there is a drop in interest rates, but that's an outcome of the kind of borrowing which has been done in last 2 quarters. And we have shared this last quarter as well that on an overall basis, the interest rates will come down going-forward basis as and when we replace our existing loans. So that's probably an outcome of that. Whether it's sustainable or not, it will be a question of how the macro environment and the markets play out, but our endeavor would be to bring it down further. On the retail part, Jairam, probably you can take it.

Thanks, Rajesh. Alpesh, lovely to get back in touch with you. Your question is, from a product perspective, what is the differentiation? Or kind of how do we, as the new kid on the block, differentiate ourselves from existing service providers. You're absolutely right that there are in most markets, the product categories are quite crowded. Our intent is two or threefold. At the core, we believe that if you're operating in the exact same market as some of the very low-cost sort of, let's say, bank service providers are, then there is very little chance that you're going to win. You've got to find the right markets in which you can play. And what do we define as a market, we are thinking of market as a combination of product, customer segment and geography. So we got to pick the right combination of product, customer segment and geography where we find that the competitive dynamics are a little bit different. And when you think about the choices that we are making, we are very specifically looking at sort of the part of market, so set aside some of the largest markets in the country because the competition intensity there is extremely high. So go to the next 2 or 3 levels down. And that's going to be from a geography perspective, our core choice. Customer segment perspective as well instead of going to sort of the fully documented, salaried income segment, try to serve a little bit more of the cash salaried and the self-employed and the small business segment. And the third piece is product, and this is going to be the core idea. And here, our thought process is that as a new service provider in the market, or someone who wants to be differentiated, we've got to find ways to disaggregate what banks tend to aggregate. What we mean is banks and the many service providers in the credit space tend to think of 1 aggregated macro level product that they offer to everybody in the market. Our intent is going to be to come out there with deep product differentiation. So to give you a very simplistic example instead of having 1 product called home loans to serve everybody, we might have a different product for somebody who is looking for an under-construction apartment finance versus somebody who's looking -- who has a plot and who's doing the self-construction on it or somebody who has a half constructed house and he's putting 1 level more on it or somebody who wants to do finishing on a house and so on. So you can imagine that 1 product, which is aggregated as home loans can be disaggregated into 5 or 6 different products. So that's what we're going to go after. It's product differentiation, geography selection and customer selection, which puts you in a pocket where there are underserved segments that we can serve. Remember that we -- our intent, at least in the first year or 2, is not to go out there and start doing thousands and thousands of crores of disbursements right from the get-go. We will eventually get there to that scale, but right now our intent is to just find the right foothold for ourselves and find pockets of population which have predictable risk, which we can price in and where we can profitably grow. And we believe there is enough and more opportunity for that in the country.

And just a related question to Jairam. Our secured business loan product that we are planning to offer would sit largely on the back of the large Telcom provider, the data that we would be getting from them or it could be our independent product also?

I think all options are open right now, Alpesh. So we will pursue partnership and strategic partnership based opportunities, and we will also pursue direct to customer opportunities.

Great. And if I may just squeeze in 1 more question. Mr. Piramal, there is unallocated network of almost INR 3,000 crores in the balance sheet. Any plans related to that?

We are just waiting for opportunities. We believe that post COVID, there will be several opportunities, and therefore, we've just kept that as unallocated for the moment.

Alpesh, to add on your adjusted guideline question. You're aware that we have 2 entities under PEL and financial services. One is NBFC and the other is Housing Finance. So given that structure, we will be able to grow well in all the verticals without having challenges to meet those guidelines whenever they come from me.

Okay. So there could be some transfer of loans from HFC to...

No, there's no need to transfer, but I'm just saying the future growth can always happen in the entity depending on the guidelines that will be coming.

The next question is from the line of Abhijeet Sakhare from Kotak Securities.

A few questions on the financials versus being postponed. First one, could you provide a book breakdown similar to last quarter in terms of construction and some hospitality, retail and within construction finance, how much would be commercial and retail? Second question is, when we look at the quarter-on-quarter AUM movement, there is a small positive jump. So just trying to understand how much of this would be price disbursements versus some element of interest capitalization? And the a related question is, the yields have moved up 100 basis points quarter-on-quarter. What explains that? And the last question is, looking at the AUM over the last 1 year or so and looking back how would you kind of quantify the reduction in terms of repayments, actual repayments versus the loan sell down that was up?

Yes. Several questions.

I'll take one by one. So let me first answer you on your breakup of commercial and retail. I think that was your first question. You had asked several questions, let me go one by one. I think on the commercial real estate, today, commercial real estate is 8% of our book, INR 3,700 crores, out of which the LAP and LRD is INR 1,300 crores. The balance are under construction for which actually those projects have actually started, mainly office space. When I say commercial, it doesn't mean any malls. It's just office space. So again, repeating LRD and LAP is around INR 1,300 crores, but our LTVs are less than 65%. And the balance amount is under construction. And while we expect 6 month delays, the projects have started, and they are mainly into cities like Bangalore, Hyderabad, Mumbai, et cetera. Coming to the question on hospitality. Our loan to hospitality is around INR 2,000 crores. Yes, there's no doubt that hospitality has been the worst affected in this pandemic. And we definitely do not expect things to improve until 12 to 18 months, talking about our portfolio again. But we do believe that when things improve, the properties that will recover first will be the hotels in prime locations with marquee brands. Also, just to add, our exposure is basically to all operating assets. And again, to top brands, whether it's Marriott, Taj Group or Hyatt. And again, the LTVs are pretty low. So this was a question of your commercial and retail. Your question on why the increase in AUM, if you really remove the interest which has been capitalized by the 2 moratoriums, AUM has actually come down. So that answers your second question. Your third question, I didn't understand you made a statement that yields have gone up. Yes, the yields have gone up because we had increased pricing in the last year, which is now playing out and which is adding to the bottom line. What was your fourth question?

Over the last 1 year, the AUM reduction that has happened. How much of that is explained by repayments?

So again, I won't be able to give you exactly how much of repayment, but I can tell you last year, if you recollect, we had pressed the envelope on liquidating and bringing liquidity. So last year, while our interest and repayment shifted, if you have gone by the repayment schedule was around INR 11,000 crores. We actually collected far more than that thanks to the prepayments, refinancing and actually only 1 down-selling, which was to Goldman Sachs of the Mumbai exposure. Otherwise, mainly everything were prepayments, repayments and refinancing, but we collected far more than the scheduled repayment.

Got it. Sorry, just clarify again, the construction finance book, what's the share of that?

Sorry.

In the AUM, I think I missed the share of construction finance book value. It's over what it was last quarter?

So I think it remains more or less the same.

[Operator Instructions] The next question is from the line of Piran Engineer from Motilal Oswal Financial Services.

Congrats on the quarter. Most of my questions are answer. I just have one. You all have said, you have raised INR 9,600 crores in the first quarter, but it does not reflect in your debt-to-equity ratio. So if I back calculate your borrowings on the financing business, it is largely flat to okay. So how do I really interpret that?

So I think your question really is why it did not move or?

Yes. Why hasn't it gone up because in a quarter, you'll probably -- you'll have borrowing commitments of INR 2,000 crores or INR 3,000 crores. So if you'll have raised 9.5%, I would have expected borrowings to have gone up maybe INR 6,000 crores INR 7,000 crores.

No, no, no. Because of this debt -- that money will have been used for the servicement of existing debt. So that's why the reflection of this, what you're seeing is coming in ALM. The debt which was there due has been repaid.

But INR 9,600 crores can't be due for 1 quarter, this would signify a very short-term liability. So typically in a quarter INR 2,000 crores or INR 3,000 crores.

No, no, as you would have noticed that because of the moratorium and because of the COVID situation, there hasn't been significant collections from the asset side. So whatever repayments were due on the debt side have been paid off to this borrowing. And this borrowing, what has been done is everything is long term, 18 months and above, 18 months to 7 years.

And some of it, you have also repaid, which was due -- you have repaid it earlier, which was short-term due so that you could change the ALM.

That's what I'm saying. So the reflection is not coming in the debt increase, but it's the debt repayment which has happened. And the effect is being seen in the ALM.

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

So firstly, I just wanted to understand the math behind the ALM. So this is after the moratorium having being accounted for? That's the first question. And the second question, sir, is, if you could kindly just share with me what is the INR 104 crores number of the -- you've got consumer product really? What is the composition of this particular piece? So that's it.

Yes, ALM has considered the moratorium numbers. This is post moratorium consideration.

Okay, sir. So because the reason why I was asking is because even in the initial 6 months, the demand looks a little high in terms of inflow. So I just wanted to recheck. So you're saying that the inflows are after accounting for the moratorium.

What I have given, yes.

Okay, sir. And just a second question, if you could just help understand the INR 104 crore number. What particular business is this in?

I think you're referring to OTC revenue.

No revenue business. There is -- in the slide, I think, the second or the first slide, there is India consumer product, which grew by 28% quarter-on-quarter to INR 104 crores. I just wanted to know what is this piece.

This would be our India OTC business, which comprises of brands like Saridon, Supractiv, Tri Active Hand Sanitizer, i-Pill and Lacto Calamine.

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

Just a couple of questions. On the unallocated network, which you said which is being kept in case there are any opportunities, what are the assets against it in terms of cash or deferred tax assets, or how is that broken up?

It's largely divided between you have Shriram investment. Then you have cash available on the balance sheet to the extent of about INR 3,000-odd crores. And then you have the deferred tax assets, tax receivables and investments into fund management business, et cetera.

Got it. Okay. And to confirm, so Lodha is flat to at around INR 3,000 crores?

This quarter it's flat, yes, by and large it is flat.

Ladies and gentlemen, due to time constraints that was the last question. I now hand the conference over to Mr. Rajesh Laddha for closing comments.

Thanks, everyone, for joining the call. If you have any more questions, please feel free to reach out to us and take care of yourself and your family.

Thank you.

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