Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Piramal Enterprises Limited Q2 and H1 FY 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha from Piramal Enterprises Limited. Thank you, and over to you, sir.

Hi. Good evening, everyone. I hope you are safe and in best of your health. I am pleased to welcome you all for this conference call to discuss Q2 and H1 FY '21 results. Our results material have been uploaded on our website, and you may like to download and refer it during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that the businesses face. On the call today, we have with us our Chairman, Mr. Ajay Piramal; Nandini Piramal, Executive Director of Piramal Enterprises; Mr. Rajesh Laddha, Executive Director of Piramal Enterprises; Mr. Khushru Jijina, Managing Director of Piramal Capital and Housing Finance; Mr. Jairam Sridharan, CEO of our Retail Financing Business; and Mr. Vivek Valsaraj, CFO of our company. With that, I would like to hand it over to our Chairman and would request him to share his initial thoughts. Over to you, sir.

Welcome, and good day to all of you. The last 8 months have been unprecedented in the history of the world. COVID impact was severe on the Indian economy as investments, consumer spending and employment declined steeply during the early days. As we are all aware, the first quarter GDP degrew by 24%, and several reputed agencies have lowered their estimates for a full year GDP growth. The RBI's estimates show that the GDP will degrow by 10% for the whole year. During this period, the RBI and the government have taken several measures such as credit guarantee schemes, injecting liquidity and so on to ease the stress in the overall economy. These measures, since April, have supported the NBFC sector as well. During this period, the pharma industry has been playing an important role and has shown resilience. We have seen continued strong demand for our CDMO development and commercial services. The industry has largely been able to meet patient needs, understanding the importance of the role they play in providing essential services to fellow citizens. In the consumer product space, there has been a healthy demand for COVID-related product categories. Also, we are now starting to see month-on-month improvement, and there are early signs of recovery seen across industries. Real estate sales and construction activity has been picking up with the second quarter being much better than the first quarter. Auto sales, whether it's 2 wheelers, 4 wheelers, tractors, have been growing. Construction equipment sector is also witnessing green shoots. The power demand has remained healthy, obviously impacting the renewable sector. The RBI governor has also said that GDP growth rate may break out of contraction and turn positive during the January to March quarter due to the recovery seen across sectors. Additionally, a steady decline in the growth rate of active COVID cases and a plateauing in corresponding death rates suggest that the worst should be behind us. Assuming there's no relapse in the health situation, we expect the various policy interventions to bode well for economic revival. Nevertheless, we continue to monitor the situation for signs of any risk in this recovery process. Now coming specifically to our company's performance. Despite the adverse environment, we delivered a resilient performance for the quarter. Revenue remained flat at INR 3,300 crores in the second quarter, but net profit grew by 14% to INR 628 crores in the second quarter and by -- up by 12% to INR 1,124 crores in H1. If we compare our performance quarter-on-quarter, the second quarter revenues have grown by 12%, and the net profit has grown by 27% compared to the preceding quarter. During this period, we have focused a lot on the -- ensuring balance sheet and liquidity -- strengthening the balance sheet and ensuring that there is enough liquidity. And since the beginning of the previous financial year, the company has brought in INR 18,000 crores capital versus the initial commitment, which you may recollect we have said, of between INR 8,000 to INR 10,000. This includes the capital raised in terms of preferential issue by CDPQ, the rights issue for all our shareholders, sales of our investment in DRG and Shriram Transport and the pharma deal with Carlyle that we completed recently. I'm also very happy to say that even in the biggest crisis the world has seen during COVID, we could still monetize our assets in DRG as well as complete the Carlyle deal. Also during this period, we have raised long-term debt of INR 24,800 crores. Of this, INR 11,500 crores was raised in the first quarter of FY '21, again, during the peak of the COVID crisis. I must say that here, the public sector banks have gone out of the way with the nudging of the RBI to ensure that enough liquidity is available to us. So with these total inflows today of INR 42,800 crores, since the beginning of FY '20, the overall equity has increased by 28% to INR 34,700 crores. And our net debt has reduced by INR 22,000 crores from INR 56,000 crores to INR 33,450 crores, leading to PL net debt-to-equity ratio of less than 1 from 2 in March '19. Also, through these inflows, we've shifted our borrowing mix towards long-term borrowings by reducing our CP borrowings, and CPs were INR 18,000 crores in September '19 and today are at INR 2,100 crores. Therefore, our ALM profile has materially improved with significant positive gap. During this period, we've also simplified our corporate structure. The completion of the [Technical Difficulty] I think there was a noise. I'll start again by saying that we have simplified our corporate structure because a lot of feedback that we got from investors was that they wanted a simple structure. So today, we have now just 2 major businesses. One is in financial services, which are in 100% subsidiaries of Piramal Enterprises. The second is a pharma, where we formed a pharma subsidiary, Carlyle has come in and Piramal Enterprises owns 80% of that -- 80% of the equity in the pharma subsidiary and Carlyle owns 20% in that. Besides that, we have still some investments in the parent for the Shriram Group, which, as we have said, we will monetize in the near future as and when the markets improve. This is also the simplified corporate structure, just 1 more step in going towards eventual aim of listing both our businesses, the financial services as well as the pharma business, separately. I'll now come to the financial services. And I'll talk about the environment in the NBFC sector, which, as you know, has gone through extremely challenging times. It was impacted even before COVID by liquidity tightening, a weaker economic growth in the environment and negative business news from many large corporates. This, with COVID-19 now, has become the most prolonged crisis for this sector. And what we are seeing is an increased pace of consolidation taking place in the NBFC sector. We believe that only the fittest will survive. Those that have a strong governance and value system, which have a very capitalized balance sheet and enough liquidity to bear the shocks, and those who have an ability to radically transform or evolve their business model to the changing environment so that they can well navigate the impact of the COVID-19 crisis. We believe that we are well positioned to come out stronger through a long runway of growth by gaining market share over the next few years. Our stronger NBFCs will complement banks and will play a critical role in reviving India's growth. What we have done during this environment is to significantly improve our capital adequacy ratio to 34% from 22% in March '19 for our financial services business alone. This makes us safe during this current period and also gives opportunities for us to grow both organically and inorganically at the appropriate time. With an equity of INR 25,000 crores, which is available for the financial services business, we are among the top 3 NBFCs in India in terms of equity capital available for financial services. We have also, as you would recollect, at the beginning of the year, this year, made an additional provision of INR 1,900 crores, thereby increasing our total provision to INR 3,000 crores, which is a 237% provision coverage, or nearly 6% of our loan book, to meet any contingencies that may arise due to the prolonged adverse environment. How are we seeing the environment today? The early trends indicate a better performance of developer clients than assumed under the stress scenario for creating provisions. As we see today in September '20, sales of our developer clients have reached 100% of pre-COVID levels, developer collections from homebuyers are at about 82% of pre-COVID levels and construction activity has resumed at all the projects we have lend into, with about 90% of the workers back at the site. As far as collection efficiency is concerned, we have seen encouraging signs post the moratorium. These could also indicate collections against pent-up demand and could be early trends. We believe that the performance of the next quarter needs to be monitored for a business as usual collection. We are monitoring the post moratorium behavior of our borrowers and are actively engaged with them to understand the business performance, their sales, corrections, and their construction activities. It would be difficult to put any specific number on the onetime restructuring as of now, as account performance going forward will play critical factor for our decision making. However, we do not expect this number of restructuring to be material compared to the size of our loan book and to the provisions that we have made. Having said that, we do acknowledge there are certain sectors within our portfolio, like hospitality, other ancillaries, where we have limited exposure, which may be needed to be evaluated for this restructuring. Post COVID, how do we look at the environment? From being a largely wholesale lending business model focused on real estate, we are working towards transforming our model to a well-diversified financial services business. We intend to create a balanced portfolio with retail lending 40% to 50% of the lending book in the next few years by growing retail, both organically and inorganically, by reducing our wholesale dependence on real estate, both through repayments, prepayments and refinancing. We are building a multi-product retail lending platform. The retail and SME lending market in India has a huge untapped potential. In addition, you can see that consolidation is taking place in this space as well. To take advantage of this opportunity, we are building a multi-product retail lending platform which will be digital at its core. Its modular structure will have an ability to add multiple products in the future. As we had mentioned earlier, we are focusing on the Bharat market targeting customer segments that are underserved by banks in Tier 2, 3 cities and on range between 25th and 1,000 in terms of economic activities. We have invested in a high-quality management team with deep domain experience in retail. We are incorporating learnings from the current environment to build a sound business model for the post-COVID world. In FY '21, we will focus on laying the foundation of the business by taking a differentiated approach retail lending in terms of product customization, personalization, developing robust processes and risk management frameworks and leveraging technology and analytics. Our first milestone is to go live during Diwali with 4 product categories in 26 towns. We will do secure lending in the current year. Going forward, we may look at product categories which are currently not as large as affordable and mass affluent housing and secured business loans, but can become large in the future. Also, we continue to evaluate inorganic opportunities in the retail financing space to make our loan book more diversified and granular. As far as the wholesale loan book is concerned, we are making it more granular and have made progress in this. We have reduced single borrower exposures for the top exposures from INR 18,400 crores to INR 14,700 crores since March 2019. As of September '20, there's only 1 account which is over 15% of net worth and only 2 other accounts greater than 10%. By 2021, we intend to bring all our exposures below 7% of net worth. In fact, 75% of our exposures will be below 4% of net worth. There will be only 1 exposure, which will be in the 10% to 15% range. And now I will shift to our pharma space. In October, we closed one of the largest PE deals in the Indian pharma sector with the Carlyle Group, and raised $490 million as fresh equity for a 20% stake in the pharma business. The deal valued our pharma business at an enterprise value of $2.78 billion with an upside component of up to $360 million. I'm very happy that within 10 years of selling our domestic pharma business to Abbott for $3.8 billion, we've been able to build a business where these values have come. These funds that we will get will help strengthen our balance sheet and accelerate organic and inorganic growth plans. We look forward to leveraging Carlyle's deep expertise and global strength to bolster our growth plans. The performance of the pharma business in the second quarter. We have been able to deliver strong performance, growing at 20% in the CDMO business and 25% in the Consumer Products business. The CDMO business continues to show strong momentum in the order book. Consumer Products business has launched 15 products and 36 SKUs (sic) [ 38 SKUs ] during the year, including COVID protection range of Tri-Activ disinfectant spray, sanitizers and masks. The complex hospital generics business, although impacted by surgeries getting postponed in key markets, showed an improved performance over the Q1 numbers, backed by business witnessing improved demand for products used in surgeries. We held or increased our market share in the major product categories across markets. Coming to the EBITDA performance, our improved revenue performance and cost rationalization efforts have enabled us to deliver, in the pharma space, an EBITDA margin of 23%. We continued quality culture of strong quality and compliance. We successfully cleared 56 USFDA inspections since FY 2012 and successfully cleared 4 regulatory inspections during the second quarter of FY '21. If I was to summarize, our resilient performance during the global pandemic is a reflection of the strength of our business model and the progress that we've been making on our strategic priorities. In the financial services business, with significant strengthening of our balance sheet and adequate provision created to meet any contingencies, we are now focused on making our business model well-diversified and increasingly granular. In the pharma, with the capital base, apart from establishing a valuation for our pharma business, also provides us with a war chest to tap multiple organic and inorganic opportunities. We are emerging stronger from the COVID-19 crisis and now at an inflection point. We remain confident that both businesses have a good runway of strong performances in the medium to the long term. Thank you, and I will wish and pray that all of you remain safe and healthy during this challenging time. Thank you.

Aman, we can open it for any questions.

[Operator Instructions] The first question is from the line of Kranthi Bathini from WealthMills Securities.

My question is to Chairman sir. Congratulations for the resilient set of numbers during these challenging times. I would like to know from you, sir, how the environment is looking going ahead? And what kind of plans -- as you keep on mentioning that you're looking for acquisitions, both in terms of pharma as well as financial services, what kind of deals you are looking forward? And what is the horizon you are looking forward? Is this the right time to go and start acquiring or you'll wait for some more time?

So first of all, as I look at it, let me talk about pharmaceuticals first. In pharma, we have a very differentiated model, where we have manufacturing and development facilities in different continents and different countries. So we have facilities in the United States, we have facilities in Canada, in Europe and in India, which are both manufacturing and development. What we are finding and as you probably are aware, 93% of our revenue comes from global clients. So what we are seeing is that there is a big emphasis now on pharma, how do people increase activities in certain pharma products? How do you have a resilient supply chain, which also means that you need to have facilities all over the world. So we are looking to work back, how we can increase our presence in some of these geographies where our customers are asking for it, certain niche products, niche capabilities that we need to acquire. So this is a good time for us to acquire, as you know, that we are -- funding has been good now. The debt to EBITDA in the pharma business is only 1.5x, which means that there is a big area -- big headroom for growth. Also, many of the other companies globally are still suffering in this space and therefore, we can get good opportunities. So that's what we are looking at. But as you may be aware and as our track record shows, both in pharma and financial services, we will look -- we will only do certain -- only do acquisitions if there is a strategic fit for it and we can create value. Coming to financial services, as we said, our strategy is to make it a more diversified and granular book. And any acquisition that we do would be to achieve that. And if it means that there would be -- that if we do any acquisition, it would be in the retail space. Again, it has to be value addition, the quality of assets, the culture and all has to fit in.

So what is the size of the acquisition you are looking forward in terms of retail financial services is concerned? Sir, do you have any specific size of acquisitions?

See, we do not have a specific size. The way we look at it is that we will see whatever makes economic sense for us as you know that our debt equity, as a company, our debt is less than 1 to equity, which is a comfortable position and gives us enough of leeway to look at different types of acquisitions.

Sir, you are also quite big...

I can't keep answering only 1 person, please ask it once. I mean, otherwise, there will be a dialogue only between you and me and there are 100, 200 people waiting. So if there's more questions, I'll be happy, we can take it off-line.

Sure, sir. Sir, this is my final question. How do you see the economy because you are a key observer of the economy? Is the worst behind us for the Indian economy and for the...

Clearly, the worst is behind us for the economy. That's what people are saying. If you see the numbers, I mean the first quarter, actually, the economy degrew by 24%. Since then, there has been an improvement. All the parameters are showing that. The RBI is estimating that what was minus 24% in the first quarter, for the year should be minus 10%. That means that at the last quarter of the year, there will be some growth. What I'm also seeing from other industries is when you're seeing the results coming out that they are much better than what people had expected. So we have to be -- we have to be optimistic, but we still have to be cautious. That's why I said, let's wait for another quarter and see how things are.

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

Could you talk about the debt level at the pharma segment after the deal -- pro forma for the deal?

So the debt level in the pharma after the deal would be between INR 2,200 crores, INR 2,500 crores.

And then on the yield in this quarter, so we had 15.2% in 1Q to 14.8% in 1H overall. So what is causing the large swing? The mix hasn't moved much. And also related to this but more forward looking, the new segments which we are launching from November onwards, since they are secured segments, even if retail and even if Tier 2 towns, would the average yield there be lower than the 14.5% to 15% level? Or would it be higher?

I will ask Jairam who heads our retail business to comment on that.

On the latter part of your question, which is the average yields in retail, your observation is right, the average yield would be lower than the 14.5% average that you see in the products driven largely by the wholesale book today. We will be looking at differentiated customer segments from banks. And so you should expect towards the higher end of the yield range within those product categories and things like affordable housing. You will be looking at, at least 10%, 11%, 12% sort of yield. But if now these are going to be 14-plus percent yield businesses, we are not getting in any meaningful way into unsecured lending in this year while COVID uncertainties still remain.

That is comment on the yields. On the first, Vivek, you or Kunal, whoever can. Yes, can you hear?

Yes, I can hear.

Vivek, sir. We request you to please unmute and respond.

Can I can take it?

Yes. Yes, yes.

So basically, the shift is not much, as you can -- as you yourself said. And basically, it is on some fair valuation loss, which led to minor yield correction. That is it. Otherwise, there's not really any significant yield which has come down.

In fact, if you compare with the last year, the yields have gone up.

The next question is from the line of Prasheel Shah from CapGrow Capital.

I just wanted to know if we are offering any top-ups to our existing clients? Hello?

Khushru?

You are talking about the wholesale clients or the retail clients?

Yes, yes, sorry, sorry, the wholesale clients, yes.

So I will answer it differently, and there's no top-up as in such required as I would -- as explained to you a quarter ago, we had anyway analyzed, post COVID, all the requirements of our developers, assuming very little sales and collections. Though, of course, the reality has played out differently. And we had set up lines wherever required to ensure completion of the projects. So if I've answered your question. And if you have seen, we have enough lines with most of our clients and that is why we continue to disburse wherever it's required to ensure the safety of our money through completion of the projects.

Okay. So how does that affect your collateral, your exposure? So if you are providing any top-ups for completion of projects or whatever it is, so how does it -- how is that affecting your...

Yes. So actually, it has played out much better. I'll just repeat that. Post COVID, we had actually assumed 0 sales and 0 collections for the first half of this year and only 20% to 30% in quarter 3 and to% 40 50% of collections and sales and construction in the last quarter. Based on that, we had looked at our cash covers, which are the ones which are going below 1.3. I think I had covered it in detail, so I won't repeat it last -- investor call, and we had gone about with various resolutions. And I've spoken about it in detail of various means by which we have improved our cash cover and security cover to ensure that there is no dip below 1.3. In -- but so far, cautiously optimistic, the numbers which have come out for our portfolio, as Mr. Piramal said, in September itself, we have seen 100% of pre-COVID level sales and 82% of collections. So in fact, our colors are far better than what we had envisaged in spite of doing -- while we had done the resolution. So in other words, we are actually sitting right now much better than what we are...?

Yes, yes. And just last question from my side. So in one of your slides, you spoke -- you mentioned -- you talked about how the industry is shaping up the real estate industry. So in some markets, the real estate sales have bounced back really well. And in fact, in a couple of markets, the sales have been doing better than what it was pre-COVID. So any comment on how do you expect the demand going forward? Is it just -- what we have seen so far, is it pent-up demand or it's here to stay? Any comment on that?

I think Mr. Piramal alluded to that. As I said, first, let's go back to our assumptions, which is very important for you to know that our assumptions were that only 30% to 40% or 50% in the affordable segment will happen in the last quarter. So it is very important for you because all our underwriting which we did, or I would say, re-underwriting and the resolutions we did with the developer was basically assuming this play out. That has not played out. It's already 100%. Yes, it's very important to see the third quarter, because as Mr. Piramal also said and your question is very valid. We need to monitor this that whether it was a pent-up demand or this is a trend where real estate has really bounced back because of COVID. So I think in the January call, we'll be having a much better idea to respond to this question. But the point remains that we have underwritten as if it's only the fourth quarter, which will come. So today, we are far better even compared to the January to March '21 quarter, if it makes sense.

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

Sir, Am I audible? Hello?

Yes, Alpesh, we request you to speak a bit loud, please.

Congrats on a good set of numbers.

Speak louder, Alpesh. We cannot hear you.

Alpesh, we request to use the handset.

Just one second. Just one second. Is this better now? Hello?

Yes. Go ahead.

Congrats on a good set of numbers. Sir, while you have alluded about increasing the share of retail in the overall portfolio, but looking at the current situation, would you be open to lend into the real estate space, considering there has been a significant improvement over the last 2 or 3 months? That's the first question. And again now, what would be the strategy about sell down of the portfolio? This is the first question. I'll come back with the second question.

No sir, as far as -- you are right. We see that the environment as far as the wholesale real estate sector is actually turning better as a business and also in terms of lending. If you see there is not much competition which is left in the real estate lending space. So that is an opportunity. But at the same time, we also want to see [Technical Difficulty]

Hello? Hello? Operator?

I think we have lost line for the current participant as well. So we will move to the next question which is from the line of Vinod Jain from WF Advisors.

Congratulations on the good set of numbers. My question is related to the real estate prices. How do you see the price scenario panning out in the next few quarters? And what kind of projections have been penciled in while looking at developer realizations for Piramal?

Khushru?

Yes. So when the COVID broke out, as you know, many people had predicted that the prices will crash, et cetera, et cetera. In the last 6 months, prices have not come down dramatically. City by city, we have seen dips of 3%, 5%, somewhere 7%. So on an average, you can take anywhere between 5% to 7% prices have got corrected. The major thing which has changed is that while the sales are happening, the collections are a little slower, which also you can assume that, that is an in-build discount. In other words, while people used to pay faster, now developers are giving a little longer time as a payment schedule to the clients to buy. So that is the real shift which has really happened in the last 6 months across all segments. So it's not really that the prices have come down. I didn't get your second question, though.

I want to know the position going forward. What is the view you have taken for your realizations from developers going forward prices?

So again, while we had assumed a 10% dip in the affordable and the mid-market segment when COVID happened, that has not really happened. And a 20% dip in the luxury segment, which also has not really happened. But as I mentioned, the real price dip has already come down to 5%, 7%. We do not see any significant price corrections going forward if this trend continues, because, in fact, in some of the cities, in the affordable segment, the prices have actually gone up in the September month.

[Operator Instructions] The next question is from the line of Abhishek Kapoor, as an individual investor.

Sir, I can see that cost of funds and cost of borrowings are approximately 8.5% and 10.8%. So how can we reduce that?

Rajesh?

Yes, I'll take that. So if you see, from last year, March and even before that, there has been a downward trend in terms of quarter-on-quarter rate of interest. Last quarter, March quarter, it was about 11%, then it came down to 10.8%. And this quarter, I think it's 10.7%, on an average basis. Our incremental cost of borrowing is coming down and that's converging into the average. And clearly, there is a downward trend going-forward basis as well. It's not that it's not coming down, but because of the fact that it's on average basis, the impact is seen on a minimalistic basis.

Yes. Right, sir. Based on the current interest rate scenario only, my question is, because it seems the cost of borrowings are on the higher side for a company like us, because we are one of the largest NBFCs in the market. So other larger NBFCs are getting FDs and other things at the rate of 7% or 6%. So any plans to how to reduce this cost of borrowing further? And what can be the optimum level as on date where we stand today on the terms of interest rate?

Yes. There are plans. As I said, the incremental borrowing is happening at much lower than the average cost and therefore, the average cost is coming down. The right set of comparison is not with 6%, 7%, this is also an outcome of rating. So I think in terms of planning, we will work on improvement in rating and therefore, we can see a significant drop in incremental cost of borrowing. And we are hopeful that with this kind of strong balance sheet and the mix changing in favor of retail, et cetera, we would get a rating upgrade.

Also, I just want to focus the fact that we must also look at what is the spread between the borrowing and lending because we must recognize that in wholesale, the spreads are much higher, and that's why when people spend also, they take that into account as well. In retail, it's not so, but in wholesale, it's clearly it.

Absolutely right, sir. Actually, we are heading towards the retail loan further, as I can see in the presentation, that's why I felt that the average cost of borrowings are on the higher side to go for a good set of customers...

Yes, it will come down as soon as that happens.

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

Yes. Actually, my question was pertaining to the incremental funds. If you could just share what has been the incremental cost of funding and how much we have raised in the last 2 quarters, if at all, you can share the data? And the second is on the retail lending side, whom do you really -- I mean who would be a direct competition for you? Or whom do you consider as a direct competition for you? Sorry.

Rajesh, I will take the first one. So I think I'll take the first one and -- so I think the incremental borrowing which is happening in the last 6 months, we have seen it's anywhere between 8.5% to 9.5%, depending on the -- which banks and which instruments, et cetera, which is clearly lower than what was happening during previous year. And that impact is seen in overall cost of funding coming down on an average basis. And we have raised INR 11,500 crores in this in terms of long-term funding. We've raised about INR 11,500 crores to INR 12,000 crores of long-term funding in first half.

And I think we have also done INR 3,000 crores, INR 4,000 crores of rollovers, et cetera. But yes, about INR 12,000 crore of long-term funding, which was in the range of 3 to 7 years.

Jairam, you could answer the competition.

The second part of your question on whom do we see as sort of direct competition or in some ways, kind of what are we modeling for our business on. I'd say that we are -- there are different aspects of business in which there are different entities that we believe are doing a really good job and we would like to sort of emulate pockets of that. So in some of our affordable housing business and the small business lending franchise in the smaller towns, you might see us look at people like AU or Aavas and some of the others, and try and build a business of that nature. So when you look at the digital at its core point that we've been talking about, there, you might see us try and build capabilities and -- more on the lines of what some of the fintechs are doing, or in some small pockets what Bajaj has done. So -- and then there is an analytic at the core element of what we are doing, which is a little bit different from what most people are doing out there in the market today. So there isn't any 1 particular player that we are modeling towards. As our business builds, we will try and learn from the best and try and incorporate that in our business model.

So then if there is no direct frontline bank kind of competing, then would it be kind of fair to say that in terms of balance sheet strength or the liability strength, you would be much stronger than most of your peers, I think many of your peers?

No, no, you're absolutely right. In fact, the core of our strategy is to actually find pockets where banks are not directly focused, because we recognize that as an NBFC, there are certain pockets that we can compete a little bit better on given our cost of fund structure. So we do pick pockets in terms of products, customer segments and properties where banks are not focused. And if you look at those pockets and segments, the kind of competition that we are likely to face there, our capital position, our cost of fund situation, our AA rating, et cetera, is going to be a matter of advantage.

And just 1 last point. I don't know whether you touched upon this or not. But in terms of -- with respect to the fintechs, would you look at kind of buying out some of them, kind of nurturing some of these kind of talents, or doing a partnership with them given the fact that, in terms of capital position, you are much stronger than all of them? So how would you really look at that part? Is it a partnership or would you just want to acquire?

So Chairman mentioned this a little bit in his opening remarks. We are open to inorganic opportunities, but that is not the primary focus. In fintech, while it is really important to build those capabilities, and we are certainly looking for appropriate opportunities that might arise there from an inorganic perspective. As you will appreciate, however, the key thing here is the talent, right? So the piece of core that the fintech has written by itself is not worth a whole lot because that piece of core will become irrelevant the moment the business context changes. So the key thing is the talent and how do we make sure that, that talent can stay with you and remain motivated, et cetera. So that's the core of the challenge in fintech. So we are unlikely to acquire or consider acquisitions in fintech purely for specific sort of core platform capabilities that they have. We don't think those are sustainable and portable. However, where we find the right product marketplace in customer segments that we are interested in and a group of founders or technical experts whose values and culture align with what we are trying to do, we'd be pretty very open to looking at those opportunities.

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

Just 1 question. I don't know whether you've sized up on this or not, but what would be your view on the restructuring or the DCCO extension for the exposures that we have? And what percentage of the group do you expect in the next 1 or 2 quarters to be restructured or getting more DCCO extension?

Rajesh, you want to take this?

Yes. So I think Mr. Piramal has, in his opening speech, covered this part. We are currently evaluating the entire scenario vis-à-vis our borrowers. That process is currently on, on an individual basis. We don't expect this number to be very large as far as real estate is concerned. However, there are a couple of sectors which are under slightly more stressed sectors like hotels, et cetera. I think it's important to note here, while from a cash and asset cover perspective, there is no problem. But from a liquidity standpoint, hospitality and hotel sector might be really under some pressure for the foreseeable future. So those are the assets where we may have to consider some sort of restructuring, but that amount is not going to be very significant. The cases -- the number of cases are not going to be very significant in overall scheme of things.

We have time the 31st. We have time till the end of the year. We also want to see what's happening in the next few months, and then we'll take a call.

Perfect. And Rajesh, 1 more question on the standalone balance sheet, there is a COVID-related provisioning of INR 300 crores. So what's the customer loans outstanding on the standalone balance sheet now?

There are a few loans still outstanding on PEL balance sheet, which we are in the process of now consolidating, either at PCHFL/PHL Fininvest. By -- before March '21, everything will be moved to PCHFL/Fininvest, and the corresponding provision also will move, therefore, to the respective entities. But remember, when we began two, 3 years back, 4 years back, there were some accounts which were there at PEL level, which we have -- most of it, 97%, 95% have already been moved to -- either to HFC or to NBFC.

Okay. Could you just quantify, would that be a number around INR 5,000 crores or so?

No, no, no, no. It's about INR 1,500 crores, INR 1,600 crores.

Okay. Great.

It's very small. As Mr. Piramal, again, stated that we are now kind of making businesses very clean. With pharma coming down in a separate subsidiary, the entire lending business will be with the PCHFL/Finvest. So that's the exercise which is currently on and before March '21, I think this final leg also will be done.

The next question is from the line of Gopinath from PNR Investments.

My question is related to trying to liquidate Shriram Group investment. Are we still in need of selling Shriram for strengthening our balance sheet further? Or is it just that we are not happy with that investment and we want to exit out of it?

No. First of all, we are not -- today, as you have correctly said, we are not in need of doing it for either strengthening our balance sheet or for liquidity. That's not the reason why we would exit from Shriram. But we had made a policy decision that we would ultimately exit from Shriram. It was not because of liquidity but because we had found that we were also doing some competing businesses, as we go into more and more retail. So we do not want them to feel in any way that there are two horses they are riding. That's the only reason. There is no urgency. We will do it at the right time and we get the right value. It does not mean that there's any issue in Shriram. We are happy with our investment, but we feel that in the long run, that's the way we want to go.

That is applicable for both Shriram City Union as well as Shriram Capital, both, is it, sir?

Yes, yes, both. It's the same thing. Yes.

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

A couple of things. One, could you share the size of stage 2 loans? And secondly, if you could talk about the outlook for loan growth. So I understand retail, the ramp-up will be gradual. On the wholesale side, I think in part you've talked about some contraction in the near term. So what is -- so let's say, looking at FY '22, would you start to -- would you want to see wholesale book start to grow again? Or would you have it contracting further?

I don't think we should make any projections for FY '22 today. Let's look at how the environment shapes up, and then that's -- today, I think to make any longer term forecast is not right. As I said, the wholesale book, there are opportunities in wholesale because the providers, the competition is reducing day by day and we have a strong balance sheet, and we have good expertise in that space. That's on 1 side. The second side is that we do want to also increase our proportion of our retail loans. So we will create a balance. And as I said, depending on the environment, we will see how we can truly get benefit of wholesale, whether it's through a fund structure, whether it is through doing co-lending where many other banks and all are approaching us to do co-lending. So it's a combination of things. Let's wait till the environment -- I think we'll get a better idea towards the end of the third quarter.

Got it. And on the other part, the size of stage 2 loans as of now?

Rajesh, you can...

So stage 3 is about INR 1,200 crores. And normally, we don't disclose stage 2 and all, but the number is about INR 1,200 crores, INR 1,300 crores for stage 2.

Okay. Sorry, your voice broke. Actually, you said INR 1,200 crores to INR 1,300 crores is the size of stage 2 loans?

Yes.

The next question is from the line of Vinod Jain from WF Advisors.

My question relates to the COVID provisioning. You have done a large provision right upfront in March quarter, which is the best in the industry, perhaps. But the situation has played out perhaps better than what you might have envisaged in March. So is it possible that the COVID provision will be reversed to some extent in the coming quarters?

As we said, the provisioning, we want to see what the third quarter is and at that time it's better because things are uncertain in the COVID environment. So whereas we feel confident today, but I want to still wait and see through the end of the next quarter.

And then if possible, some reversal of the provisioning may happen?

I'm not saying anything. Let's wait, know? It's only 3 months left. Let's see how the situation is.

The next question is from the line of Abhishek Kumar Leekha from Neste Wealth Management Services. Abhishek, I would request you to be a bit loud, sir. We are unable to hear you clearly.

Congrats on a very stable set of numbers. Just want to have your understanding on the renewable sector exposure that we may have. Since the sector is now looking up, so how the exposure is playing out now?

Yes. So we had a renewable sector exposure of INR 3,900 crores. It has already come down from June to September to INR 2,800 crores, and it is -- it will -- in October, will come down further, because 2 large exposures of ours, which was ACME and ReNew, we got it refinanced at par with Brookfield, which we just concluded today, in fact, the entire deal. And basically the other renewable sectors wherever we are given the loans will also -- there is a lot of refinance, which will happen, as you rightly said, because it's looking up. And by March, we will be -- except for Mithra, which we have already started getting the company up and back and then selling it off, except Mithra, before March, all our renewable exposure would have got refinanced.

Just to add, the prospects of the renewable sector has been pretty good in the last few months despite COVID environment. The power demand has been good and, if you see, the share of renewable has actually gone better. Mr. Jijina, would you like to elaborate a little on that?

Yes, absolutely. I think one of the positives of COVID has been the renewed interest in renewables. As I said, we just concluded a deal of refinance with Brookfield, which gave us INR 1,500 crores liquidity in the month of October. Partly it came in September and partly in the month of October. Even Mithra, if you recollect, it was one of our weak companies and weak loans, where we have provided almost INR 350 crores to INR 360 crores. But post COVID, all the bondholders, that is Piramal Capital, Goldman Sachs and APG took over along with the promoters and to get the things right. Hopefully, we should actually be able to, in the next year or from today, able to monetize that asset also and our loan. So that has been one of the positives of COVID.

Okay. Okay. So Mithra, the provision that we have done, INR 300 crores to INR 350-odd crores, do you think that it could suffice?

I think we would not like to go asset-by-asset disclosure. What is more important to understand, as Mr. Piramal also mentioned, that we've taken provision based on very conservative assumptions, and we believe that this provisioning should be good enough for any kinds of contingencies. And frankly, as Mr. Jijina mentioned, the prospects of the real estate as well as the renewable sectors have improved. And so, yes, all that provision should be much more than sufficient.

The next question is from the line of [ Amit ], as an individual investor.

If we see our wholesale book, compared to last quarter, it is more of flattish. And in last call, as Mr. Khushru mentioned that there will be more refinancing deal in wholesale segment. So have we done some fresh lending or if you can throw some light on this part?

Yes. So it's a good question. The 2 things which we are on top most is -- from the last 6 months is resolutions to ensure that our asset quality is good and the projects are complete and also refinancing it. That's what we have mentioned. And the first one is what we were concentrating right up to September. I can confirm to you that in this quarter, in the third quarter itself, you will see the book coming down, though it has come down in -- as you rightly said in September, but the -- but we continue to disburse our under construction projects to ensure project completion because that also helps in refinancing. I hope you understand what I'm saying. At the end of the day, if you -- it's the quality of the asset, it's -- and you complete, there's a financial closure. It's very easy to refinance much better than if there's a stuck project. And you will see from October itself, we have started getting more refinance than what it was in September. But in this third quarter, which is October, November, December, you will see a lot of liquidity coming in through refinance.

Okay. I don't know if you can answer this, but have we done any fresh lending to a fresh project in this quarter?

No, no, no.

See, no major new projects are getting launched right now in this environment. So the question of lending to the new projects or fresh projects is sort of more hypothetical.

Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Thank you, and over to you, sir.

Thanks, everyone, for joining. In case you have more questions, please feel free to reach out to us. Thank you.

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