Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to Piramal Enterprises Limited Q4 and Full Year 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.

Thanks, Aman. Good evening, everyone. Hope you are safe and in best of your health. I'm pleased to welcome you all to this conference call to discuss our Q4 and full year FY '21 results. Our results presentations have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our businesses face. On the call today, we have with us our Group Chairman, Mr. Ajay Piramal; Nandini Piramal, Executive Director, Piramal Enterprises and Chairperson, Piramal Pharma Limited; Mr. Rajesh Laddha, Executive Director and Group CFO, Piramal Enterprises; Mr. Khushru Jijina, Executive Director of Financial Services, Piramal Enterprises; Mr. Jairam Sridharan, CEO of 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.

Good day. Hope you and your family members are safe in the midst of COVID-19 second wave. Some of us have felt the pandemic even more acutely with the loss of our family members, relatives or loved ones. I wish us all the strength and fortitude to deal with our loss in these challenging times. The second COVID wave has impacted the recovery cycle India was witnessing in the second half of FY '21. However, the economic impact is expected to be nowhere closer to what we saw during the peak of the first wave. Actually, the business metrics in the first quarter of FY '22 are likely to resemble those of quarter 2 in FY '21. To wide economy front, our country is better prepared this time than a year back. Businesses have learned to adapt to physical restrictions. Government is judicially imposing measured lockdowns to minimize disruptions. RBI and financial markets are better prepared to manage liquidity challenges. The recent RBI relief measures for small borrowers and SMEs were proactive. It's also equally important to remain well prepared for a scenario of continued economic slowdown in case the COVID extends longer than anticipated. Despite such a volatile environment, the company has delivered a resilient performance in an unprecedented year. For FY '21, the revenues at INR 12,089 crores and normalized profit of INR 2,627 crores were broadly stable year-over-year. For the fourth quarter of FY '21, revenues marginally grew up to INR 3,400 crores and delivered a normalized profit of INR 748 crores. After significantly transforming ourselves over the last 2 years, we have now built in a much stronger balance sheet, strengthening our equity as well as our liabilities profile. We continue to work towards building a resilient business model that can tie to our multiyear business cycles. On the balance sheet side, over the last 2 years, we have raised INR 18,000 crores of equity. As a result of these 2 years, our equity base has increased by 29% and our net debt has reduced by 45%. Our net debt to equity has reduced from 2x in March 2019 to 0.5 -- 0.9 currently. The capital adequacy in our Financial Services business has gone up from 22% in March 2019 to 37% now. This is amongst the highest capital adequacy levels across financial services companies in India, ensuring safety in the most volatile of environments. We have also raised INR 33,000 crores of long-term borrowings in the last 2 years. We have utilized this borrowing to replace most of our short-term CP borrowings. As a result, we now have a much stronger ALM profile with significant positive gaps across all the buckets. We held INR 7,000 crores of cash and cash equivalents in the entity level as of March '21. That is over 15% of our loan book size. At these levels, we have one of the most liquid large NBFCs in the country. At the beginning of the first wave of COVID, we had made an incremental provision of INR 1,900 crores, taking our total provisions to nearly INR 3,000 crores, as a prudent measure towards potential contingencies. In the last year, we have utilized nearly INR 166 crores out of that provision. We now have provisions of INR 2,800 crores, equivalent to 6.3% of our overall loan book. The provisioning as a percentage of wholesale loans is even higher, at 6.8% as of March '21. We believe that these provisions are sufficient to meet any future contingencies that may arise due to the impact of the second wave of COVID. Apart from significantly transforming our liability side and strengthening our balance sheet, we are continuing to move towards executing major transformation of our asset side. We are progressing on transforming ourselves from a largely wholesale-led NBFC to a well-diversified NBFC, with a share of retail to increase to 50% of the lending book in the near term from 12% as of March '21. This transformation is being undertaken through executing on 3 major strategies: the first, organic buildup of the retail lending business; second, completion of the DHFL acquisition; and thirdly, rationalizing our wholesale book and making it more granular. We made good progress in pivoting the retail lending business to a multi-product strategy during FY '21. We increased our product portfolio from 2 to 7 products in the last year and plan to add more products in the current year. We expanded our presence from 14 to 40 locations. We formed partnerships with select fintech and consumer tech firms and have on-boarded top quality talent. In the last quarter of FY '21, we saw a healthy traction across product categories as disbursements and log-ins continued to pick up month-on-month. The DHFL acquisition remains on track and is progressing as expected. In [ FY ] '21, we received the RBI approval. And recently, in April of this year, the deal also received the CCI approval. The DHFL acquisition fits well into our overall retail strategy, as it will enable us to achieve scale and leverage in the platform to cross-sell, significantly change our loan mix and lower our cost of borrowings due to low acquisition borrowing costs as well as the benefit from loan book diversification, resulting in a possible ratings upgrade post completion of the acquisition. To increase diversification of our loan book, we are also consciously bringing down our wholesale portfolio size, which has reduced by 23% since March 2019 to INR 39,000 crores. Our top 10 exposures have reduced 28% since March 2019, from INR 18,400 crores to INR 13,300 crores. None of the accounts are now greater than 15% of net worth, and only 4 accounts are greater than 6% of net worth. The environment for the second half of last year played out better than what we had envisaged. The real estate sector has witnessed a revival in demand since October 2020, driven by pent-up demand, changing customer preferences and government initiatives, especially in Maharashtra, the stamp duty cuts. In fact, developer sales and connections across major cities had surpassed pre-COVID levels in the last 2 quarters. No new account has been restructured in the last quarter of FY '21 under the RBI-approved onetime restructuring scheme. However, the second wave of COVID-19 has now hit the country. Although our clients are more prepared this time to handle the situation, it is too early to assess the impact. We continue to remain vigilant across our portfolio to mitigate any potential risks. I will come to the GNPA. The GNPA ratio has increased from 3.7% in December 2020 to 4.5% as of March '21. The increase in our GNPA during the year was majorly due to movement from Stage 2 to Stage 3, and lower base effect as our loan book size reduced in line with our stated diversification strategy. Our Pharma business has continued to grow and registered a growth of 19% during the quarter, delivering revenues of INR 1,923 crores, thereby indicating the quality of its business model, which can deliver strong performances even in the toughest business environment. The business teams have been quite proactive in taking several measures to navigate the current challenges posed by the unprecedented environment. Our top priority is the safety and well-being of our employees. Our plants have worked through the pandemic. However, the second wave of COVID in India has impacted more people than the first. On the other hand, the developed markets are opening up and businesses are returning to normal. We secured our supply through alternative vendor development and backward integration activities. The strong fundamentals of our business as well as sufficient measures taken during the COVID period has enabled us to continue to deliver robust performance even during the midst of the second wave. I'll now come to our CDMO business, where we are uniquely positioned. We have capabilities across the drug life cycle as well as in niche areas such as injectables, HPAPI antibody drug conjugation, et cetera. And this grew by 23% during the quarter due to a strong growing order book despite COVID. We added 50 new customers in the year. Our ability to provide integrated offerings got significant traction from our customers. There has been an 8x increase in order book of integrated projects from FY '17 to FY '21. 40% of the order book is from integrated projects in the last year, 18 development programs, so 3x the increase in number of Phase III molecules, from 10 in FY '17 to 30 in FY '21. We also saw significant growth in commercial products under patent, which increased from 11 to 19 in the past 2 years. The Complex Hospital Generics business remained flat during the year. While there is volatility and uncertainty around market demand, we have grown or maintained market share in most markets and products. Despite these challenges, we do see a positive trend emerging from our largest product, Sevoflurane, in our largest market, the U.S. We are now the largest Sevoflurane supplier in the U.S. for the third and fourth quarter of FY '21. Reflecting a change in the COVID scenario, government responses and patient sentiments in the U.S., we have seen positive trends in our recovery in surgeries in the U.S., resulting in sequentially increasing Sevoflurane volumes in February, March and April. Operations in manufacture continued uninterrupted, and we achieved cost savings. In addition, we won significant contracts of products across major markets. Now coming to the Indian Consumer Healthcare business. Our business delivered a 55% strong growth in the quarter. We launched 15 new products and 35-plus SKUs during the year. These also include multiple COVID care products such as Tri-Activ sanitizer spray, liquid disinfectant, oximeters, et cetera, demonstrating the agility of the business to find opportunity even in the toughest of the crisis [Audio Gap] at 32 e-commerce platforms. As you are aware, during the year, Piramal Pharma raised up to $560 million of equity capital from Carlyle Group for a 20% stake at one of the largest EVs in the Indian pharma sector, running our Pharma business at an EV of USD 2.775 million -- $2.775 billion. Since the capital raise, we have been investing organically and inorganically across all our Pharma businesses. In the CDMO business, we announced an investment of $32 million in our Riverview facility by additional capacity in potent and nonpotent API development and manufacturing. In June 2020, we acquired a solid oral dosage facility in Sellersville, Pennsylvania. And recently, we've agreed to acquire Hemmo Pharmaceuticals, add peptide API development and manufacturing capabilities to our CDMO business. Despite the pandemic, Hemmo has generated 20% higher revenue during the first 11 months of the current year versus the full year fiscal year, with gross contribution and EBITDA margin higher than our overall Pharma businesses. Leveraging our customer base and end-to-end capabilities to provide integrated offerings, we expect its revenue to grow 3x or more in the next few years, meaningfully changing the profitability margin for our business, thereby improving our overall Pharma profitability. In the Hospital Generics space, we completed the acquisition of a 49% remaining stake in Convergence Chemicals. The Consumer Indian Healthcare business has also been investing in brand promotion activities to further improve the branding quality of our products. Our Pharma business has consistently delivered strong performance over a long period, with our 10-year revenue CAGR of 14% and 10-year EBITDA CAGR of 28%. Going forward, we expect to maintain an organic growth of 15%, and acquisitions will add to this. Each of the businesses has a compelling plan for organic growth and sees multiple acquisition opportunities. We've announced 3 acquisitions, as I said, during the year, and we'll do more in the next 2 to 3 years. Our focus on the next year is to invest in the business lines to further boost its growth, and ROC will gradually improve as we deliver on that objective. In conclusion, our fourth quarter and the results for the full year of FY '21 reflect the transformation that we have undertaken to bring us [Audio Gap] along environment [Audio Gap] and our transformation agenda, which will significantly improve earnings predictability and create long-term value for shareholders. In the last 1 year, we have also taken several steps towards creating 2 separate listed entities. We have sold our less strategic businesses and investments, such as the DRGs and our stake in Shriram Transport, thus simplifying our corporate structure, brought all our similar businesses together in Pharma under Piramal Pharma Limited, strengthening the balance sheets of both the businesses to enable them to stand independently in the future, and created separate board and management teams for both the businesses. We are now getting ready for demerging our company into 2 large listed entities in the Financial sector and Pharma sector by making our businesses even more stable and resilient. I'm confident that these businesses will emerge as 2 strong companies that should have a good runway for growth in the long term. As I end, the Board has recommended a dividend of INR 33 per share for the approval of shareholders in the AGM. The total dividend payout on this account would be INR 788 crores. Thank you.

Thank you.

Operator, we can take questions.

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

Sir, 2, 3 questions from my side. First one is on the Financial Services business. I see very sharp drop in the margins on a quarter-on-quarter basis and correspondingly, obviously, declining NII also. So any specific reason, because the loan book has not declined to that extent? Shall I put all these questions together or one by one?

No, put all the questions together.

Yes. Sure. That's the first one. The second one, post the complete acquisition of DHFL transaction, are you planning to add more capital to the Financial Services business since we are setting with some unallocated or net worth at the consolidated level? The third question is related to the goodwill. The [ related ] guidelines are taken into consideration for the subsidiaries as well, especially the financial subsidiary. And the last one, when I look at the stand-alone and the consolidated balance sheet, that is investment property line head of around INR 1,300 crores that has come up in this quarter. So has there been any takeover of the assets related to our real book during the quarter? These are the questions from my side.

Rajesh, can you please answer?

I think your first question was around net interest margins. There, at the wholesale book is reducing. On an overall basis, the net interest margin will come down, but the yields on the wholesale book is higher than the retail one. So that's where there is some pressure on NIMs on overall basis. But I think...

I understand that, but the drop seems to be very strong on a quarter-on-quarter basis. Even though you're factoring the decline into the wholesale book, but the drop seems to be extremely strong on a quarter-on-quarter basis. Because you report the cumulative margins, right, on the contract-specific margins. So the contract-specific margins are down almost, if I'm not wrong, around 140, 150 basis points Q-o-Q.

If you see the wholesale book reduction during the quarter, you're referring to quarter 4, right?

I'm talking about quarter 4. So the margins that you report, that 5 points increase for the full year.

I'm coming to that. And when I explain to you the fourth point, at that time, I'll cover this again. Your question 4, I'll cover this. As the wholesale book is coming down, the margins -- because wholesale, the margin -- overall margin of wholesales are higher. So I'll cover that as I'll answer the question number four.

Okay. Perfect.

Your second question was around DHFL completion, right? So the process is on. The matter is with NCLT. As Mr. Chairman also mentioned that we already got the RBI approval, we got the CCI approval. Now the matter is pending with NCLT. Hearings are on. We expect this to get concluded in the next couple of months' time as far as NCLT is concerned, unless there is some other party takes it to higher authorities. But the overall NCLT proceedings should get over in the next 2 months' time, a couple of months' time. And then post that, we have simply the transition in terms of making the payment, et cetera. So that's the broad time line for overall DHFL completion.

Okay. So are you planning to add more capital in this transaction?

So on Financial Services, I don't think -- this year-end, March year-end, Financial Services overall capital or the net worth is close to about INR 18,000 crores. If you see, the net debt to equity, as far as Financial Services is concerned, we are very, very comfortable position. And for the next 4, 5 years, even if we have to grow whatever, number you want to take, 20%, 25%, we will not need any more capital for Financial Services business. So unallocated capital, which is lying at, say, PE level, at Piramal Enterprises level, will remain unallocated. Unless there is some major new idea which can develop, but otherwise, both our businesses will be independent in terms of capital adequacy, so to say. So Pharma also will be adequately -- is already adequately capitalized with Carlyle infusion. So Pharma also may not need a significant amount of capital. With regards to this property or the rights, which we have got FSI development rights, this was a transaction which was lying at PCHFL level, at Piramal Capital level, vis-a-vis Omkar loan. Because of the IBC risk, which was looming as far as Omkar was concerned, what we have done is that we have bought these FSI rights for one of the projects of Omkar, where we have lent money from PCHFL. We have moved that to PEL to secure ourselves from the IBC risk, because there was indication that the entire Omkar -- or this portfolio can go into IBC and we wanted to secure ourselves completely. So that's why this particular loan transaction, we moved to PEL. And now we own or we have bought the FSI from Omkar for further sale or whatever we want to do in future. So in a way, we have secured ourselves from the IBC risk from Omkar through this transaction. And because PCHFL, Piramal Capital, could not do it, we had to do this transaction at PEL level. And now we'll not be accruing any more interest on this entire [ INR 330 crores ] because now this is converted from loan to an asset.

Okay. And whatever the accrued interest that you had, you would have reversed it by the time of [indiscernible].

That's right. So quarter 4, we have actually -- we have reversed that quarter 4, we have not booked anything on this. Actually, not quarter 4, quarter 3 we did the transaction. So that's the impact which has come, as we have said. That is one. Secondly, also, we had -- Vivek can confirm the number, one of my colleagues. But because of the Supreme Court decision, also, we had to reverse interest on interest in quarter 4. I think the total number is about INR 75 crores, INR 78 crores. [ There's a few orders given engagement that you can charge in present interest on nonborrower ]. Because of these 2, 3 reasons, quarter 4 is looking weak on the interest income, therefore, on the NIM side.

Okay. Got it. And if I may ask you about Omkar transaction, were you the sole lender that the project -- even if the project would into litigation, this is completely secured for them now?

Yes. So now it's...

Rajesh, can I answer that?

Yes, please go ahead.

Yes. So Khushru here. It is not a [ valid ] transaction, we're under a lease transaction where we have taken over the development rights of 67 lakh square feet much ahead of all the problems which Omkar is facing. So that was a proactive measure we took. And now we are the master developers in PEL, and now we will be actually doing either the joint development or selling of the development rights. And that's what will happen now from '22 onwards.

Got it. So when we talk about the master development, there would be certain investments also involved with this project?

Sorry?

There will be more finances involved into this...

No, no, this is now -- the entire this thing belongs to us now.

Yes. This is our property.

And Rajesh, just the last question, related to the goodwill amortization. Have we implemented this at the Financial Services level as well because when we take the merger of the subsidiaries, that was a goodwill which got created at the subsidiary level? At the finance level, obviously, [ a different number ] than...

Yes, yes. This tax notification which has come in this budget, it's applicable for the future amortization for goodwill. So last 4, 5 years, whatever has been amortized, you have taken that benefit with the balance unamortized part. We have actually reversed the DTA in the consolidated accounts to the extent of about INR 250 crores this quarter. And that's the onetime charge in the accounts. So we cleaned that up. We have followed exactly what budget has prescribed in terms of treatment of goodwill, and therefore, the amortization and the tax benefit.

Yes. But we did not take the depreciation benefit at the subsidiary level, right? So that we -- there won't be any tax impact at the subsidiary level. It is -- we were taking depreciation benefit at the [ consolidated level ]?

No, no. Depreciation benefit was always at subsidiary level at PCHFL level. Amortization was happening at PCHFL level. We had to create deferred tax asset at consolidated level. Whatever DTA has already been amortized is amortized. Whatever unamortized portion of DTA has been reversed during this quarter.

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

In the slide which is shown on the products being added, now there are quite a few which have been done in partnership with fintechs. For this, could you talk about the particular project flow? And how do you control for underwriting [ for it ]? And that's my first question. My second question is, if you could give us some sense of how the developer portfolio is doing in April with construction. Has the construction actually began or pre-lockdown or [ mines ] level? And then last question, we saw some increase in GNPA. As you mentioned, there is also a lower base -- lower denominator which is causing it. But just your outlook for this going forward? And in that context, what is the [indiscernible]?

This is Jairam here. Let me take the first one, and then I'll hand over to Ajay for the second one. So to your question of how are we thinking about underwriting when we get into partnerships with fintechs, there are 3 parts to the credit underwriting aspect. And there is one separate thing, which is on fraud, I'll come to it later. So the first level, the way the filtration works is we agree with the fintech partner upfront what some of the gating criteria are going to be. So the gating criteria are decided months in advance of the partnerships going live, and that is done by evaluation and assessment and analysis of these partner's past track record and history. So we work with them and their database to actually see what credit performance of their customers have been, et cetera. And based on all that, we agree on a predefined gating criteria. Now that gating criteria, once we agree and we sign off on, then that starts getting implemented and executed at the partner's end. Everybody who passes through the gating criteria is actually then shown to us. At which point we take the information that is available at the partner. We do the bureau record, we actually take all the information available on the bureau. And see, we have partner profiling criteria of our own, which we use. We overlay those 3 things and come up with a [ fair resistion ]. All of this happens in an automated fashion in real time, and we are able to get back to the partner with our decision. The other element of this is the fraud check, which is a completely different machine learning model that we have which uses customer profile, partner profile, process profile and the bureau records to actually come up with a fraud probability score. And we have an automated engine which determine -- which cross-tabulates these records and profiles and comes up with auto-decline decisions on that basis. So that's the broad architecture of how we look at underwriting in a partnership context. Khushru, you want to talk about the developer question that he has?

So your question was on how are the developers performing in April, right? That was the question?

Right.

Yes. So in the second wave, first of all, I must say that there is a difference in the second wave and the -- between the second wave and the first wave. What is it? I mean the first wave way back last year in March, April, May, there were 0 sales because it just hit you. And real estate developers didn't know what to do and how to sell. Over this journey, you would have seen that the sales have also become now digital, so while in April, the sales have actually happened. It's not like the last wave. But what is very important for you to understand here is that the last 2 quarters, which is October to December and especially January to March, all India, not only Maharashtra, our developer sales, in fact, generally also, but I can talk about our developer sales, have been actually very good. In fact, in the last quarter, Jan to March, the sales and the collection figures were almost 2x that of the pre-COVID level. So why am I telling you that? Because at the end of the day, the collections is what is very important for us more than the sales. And collections is broken up into 2 parts. One is sales already done, where the slabs have to come, so construction has to go on and you keep on collecting. And second is new sales. So let's look at the numbers for April, which is very early [ we have got ]. Our collection for April was INR 750 crores, which is in line with our normal pre-COVID. And out of that, only INR 25 crores was from new sales and others were all basically sales which were locked in receivables and the construction going on. Sales will fall in the month of May. However, the collections will be largely dependent on the construction. Already, we are seeing a dip of construction activity by 20%. In the month of May, you could see somewhere around 20%, 25%. Again, going -- if you go granular, there are some sites which are actually becoming better because the migrant labor after Bengal election is coming back, but we'll have to wait and watch. So in summary, I would like to say that we have to watch the construction more than the sales. Sales can drop further in the month of May, but our focus should be on collection. In other words, if the construction continues, at least at 70, 75 levels -- percentage levels, your collections will be there, if I've answered your question. And it is far, far better than what it was in the first quarter of last year.

That was really helpful. And then the third part on the outlook for GNPA and its level now?

Rajesh, you want to take it?

Yes. So there has been a slight increase in the GNPA mainly because a couple of accounts moved from Stage 2 to Stage 3, and also because of the base effect. Because at the end of the day, even the book is shrinking. So also having said that, I must also share with you that, in fact, 2 out of those accounts, we are -- will be resolving in the first quarter itself. So in fact, one of them, [ Saddral ], which went into Stage 3, in fact, we have fully recovered the amount in the month of April. Having said that, your question on the outlook, I think it's too early to say on the outlook. As of now, I think the current provision is good enough because we are well provided. And you must not forget that at the end of the day, when the book is coming down month-on-month, we are not reversing the provision. The provision is actually there. So it's actually adding to the buffer. But having said that, we'll have to wait and watch. Too early to comment on that. We'll have to see how this COVID 2 plays out.

I just want to add one point here. On the [ sharebacks ], we created this provision of INR 3,000 crores by adding INR 2,000 crores in the beginning of the year. And so far in last 1 year, despite the COVID activities, the COVID has been there for almost full year, we ended up utilizing less than 10% of the total provision. And 90% of the provision is still intact. So that basically also indicates the -- that also kind of reflects the real estate activity that happened well during the second half of the year. And as Mr. Jijina mentioned, we will continue to push for the collections and let's see how things may all be -- may end in the coming months.

Got it. So I don't know if it's [ who ] just mentioned the GST number. If you can share that, it would be helpful.

You're talking about Stage 2?

Under Stage 2, yes.

Mr. Laddha, would you like to respond to the question?

Generally, we don't give the break out, right, so I would follow the same policy with this.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on the Pharma side, given that we have a strong order book on the CDMO and we'll have a revival on the elective surgery side, given that the intensity of COVID is relatively less in the developed market, is the 15% revenue guidance too conservative?

So the 15% revenue guidance was given for the long term. I think in the current year, we should do better than that.

Yes, right. Because again, supposedly the low base of FY '21 because of impact on the Complex Hospital Generics business as such.

Yes. And the order book is also strong. So we should do better than that.

And secondly, we have hit the EBITDA margin rate of 28% for Q4, while it's lower for full year. But -- so how do we look at the EBITDA margin trajectory going forward?

Well, 20% -- 28% is not -- the last quarter was a very good quarter as far as the sales are concerned, but I don't want you to think that, that's going to be the margin for the whole year. So where we had indicated earlier, that will be the margin. Let's look at that.

Okay. Because I was wondering like the operating leverage will play out in the Complex Hospital Generics with the revival in sales. And CDMO in any case is at a higher margin. And the traction on the India Consumer Products also continued to do well. So there also, it's more of an operating leverage play. So from that perspective, the margin [indiscernible]

Yes. As I said, something happen also during the year. I want to say that they're going to invest more in the consumer -- Indian Consumer business because there are opportunities. So we'll build brand also there.

Got it. And actually, that was my other question. On the CapEx side, on the organic front, how much the - how much of CapEx to consider for the upcoming years in the Pharma segment?

Vivek?

Yes. So as we had guided during our Pharma Day as well, during FY '22 and FY '23 we'll see a slightly higher quantum of CapEx, given that we are doing capacity expansions at our North American facility and our facility at Grangemouth. So you would see on an average about $90 million to $100 million CapEx over 2 years, during these 2 years. 90 to 100 over 2 years.

The next question is from the line of Prakash Agarwal from Axis Capital.

My question is similar to the earlier participant. If you could give some more color on the quarter 4 margins. Because what I understood was the 9 months margin was around 19%. And you're saying full year is about 22%. So there is a bump up in the Q4. And we have also seen some recovery in the Complex Generics. So it should be correlated to? And going forward, we are saying that Complex Hospital Generics business is expected to see growth revival. And then the margin should go way up and taking care of the consumer business investment also. So what are we missing here when Mr. Piramal is saying that we should not take margin expansion here?

Overall, we would have also focused that the potential growth in the Pharma business has been almost 40% in terms of [ FC ]. A large quantum of expenses are fixed in nature. And therefore, whenever revenues are significantly higher during our quarter, you would see margin expansion. If you compare this with even last year, you would have seen that margins even increased to 9% ]. So I don't think 1 quarter's margin is anyway our guidance, as Chairman rightly indicated that the margins will be more uniform if we look at your full year operating margins. And yes, while the Complex Hospital Generics revenues increased, overall Global Pharma margins will see some improvement. But as we have made a conscious call to probably invest in some of the OTC brands, that will also have a midterm impact on the margins. So that's where the overall margin will be -- the blended margins will be.

So I mean this quarter is clearly one-off, you are saying, and you're not giving us color on why the margins are high?

Correct. The current quarter is not an indication of the future because we feel it would be high to [indiscernible].

But that's what we should understand is that the margins on the existing operations will be good. But we are also investing more. We raised capital, we are investing when we acquired these after...

[ My question ], why is the quarter margin was higher? I mean you have not clearly explained that, right?

So this -- so in the quarter when the revenues are higher, the fixed costs are leveraged better. And that leads to a higher margin because a real comp of manufacturing sites have got fixed expenses. So when contract manufacturing revenues grew by 25%, expenses remained at the same level as they are each quarter to a great extent. And therefore, because of expense leverage, the operating margin goes up.

Prakash, the way that is the quarter 4 sales salience for the -- among the 4 quarters, that might probably explain...

[indiscernible]

Correct. So almost about 35% of the revenues actually come from quarter 4.

Correct. So that's the reason why EBITDA margins are higher because the fixed cost leverage gain. So if you do 35% of the [ Eli Lilly ] sale in 1 quarter, obviously, you see this kind of performance. And maybe related to Pharma...

Okay. And [indiscernible] Complex Hospital business would have helped. Would that also be correct understanding?

It will help. So next year, as -- because the margins on Complex generates an EBITDA level that's much higher. If that business revives, margins will improve. But the point which is being made is that we will also invest into our OTC and CDMO businesses.

Okay. And second one is on the [ business units ] Earlier a covenant of these guidelines giving an upside of $360 million subject to some conditions.

They are. Is there also some information that is [indiscernible]

Sir, I think you're speaking in the -- Chairman, sir, would you like to respond to the question? Prakash, can you repeat that?

What is your question?

Sir, I wanted to understand, is there any upside which was agreed earlier a year back for the Carlyle deal of about $360 million? Are we still subject to getting that? Or is it done and dusted now?

No, that's now with the performance and what we are seeing in the Hospital Generics, it's unlikely to happen. That's what happened.

Okay. Given the COVID tier or whatever, that's okay. Okay, got it. And lastly, sir, you mentioned about coming nearer to the demerger of Pharma and Financial Businesses. Any time line you would like to attribute to?

No. I think we have said so before, so let's just wait for it to happen, just see all the steps taking place. There are still moving parts of the DHFL acquisition and so on. So once that happened, I think we'll be in a better position to tell you.

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

Yes. So a few questions from my side. Firstly, in terms of the unallocated equity, I think you said like currently, it wouldn't either get maybe allocated either towards the Financial Services or Pharma, as both of them are sufficiently capitalized. But on demerger, if we have to actually look at it, so [ Vivek ] should [ exit ] finally, maybe the Financial Services will be a growth business, capital consuming. So now would ideally a significant part of it would get into the Financial Services. How should we look at this entire unallocated equity as such?

So the way to look at it is, frankly, both the businesses, the Pharma business does not require any additional equity to date. And neither the Financial Services business, even after taking into account what the fact that we are doing the acquisition of DHFL, as well as if you take the growth for the next 5 years or the 20% growth year-on-year, we do not require any additional equity. So it will remain unallocated. We will decide how to do it, and we will be transparent when we decide what to do. So what are the options? Actually, we have a very big need of equity through a big acquisition in Pharma, we can do that. If we need something more, some new inorganic growth in Financial Services, we can do that. Or we have other options at the parent. We can do either a new business, we can return it to shareholders. There are many options. So today, we are not -- we only know that it's not needed today. That's what's important to understand. And we will make the best use of the equity.

Sure. And secondly, in terms of this NCLT hearing, which is on, can you say it is more in terms of procedural? Or it is maybe in terms of other leaders now having some representation out there, and that's what is happening? Or maybe this is the normal course which is going on in NCLT.

As far as my understanding, it is a normal course. So none of the bidders who are there in the process have actually gone to court. I think we also have to recognize that every region, we got 94% of the creditors voting for us. The 6% are the ones who did not vote for anybody, so that other bidders got more than us. So the difference between us and the next bidder was significant. And therefore, they are not going through the process. Beside that, this is an -- RBI directed this whole IBC process and RBI gave us posted and proper in the short [Audio Gap] other ratification. But you know how it is. Anybody can raise in the country has the right to go to court, so we have to go through the process.

Sure. And the other one was on interest. If I heard you correctly, what was the amount, INR 75 crores, INR 78 crores?

INR 73 crores.

That seems to be very low considering the entire book would be wholesale, more than INR 2 crores, and if we just look at the yield over there and calculate the 6 months interest reversal. So I'm quite surprised. Maybe in terms of the calculation, we thought that was quite a high number. But I don't know maybe how it is getting to this INR 73 crores, INR 75 crores.

No, that's the number. It's been audited and we have clearly stated that into the account -- I don't know [ why you say ]

I think margin, maybe -- so margin impact was only because of the INR 73 crores, INR 75 crores. I think that was only component which was there in margin, which has led to the reduction.

Yes. That was the major one. And I also explained the ongoing transaction.

Got it. Yes. And in terms of the Stage 2, you don't share the numbers, but directionally, if we have to look at it, there has been some movement which has happened from Stage 2 to Stage 3 as well. So how has the Stage 2 directionally moved? Last time, you mentioned that the Stage 2 plus Stage 3 was up 5% in absolute amount. If you can just give directionally as to how it has been this quarter.

If I give you the percentage, then we are giving the number, right? So you are just asking the question differently. I think I would refrain giving the numbers separately.

Okay, okay. And lastly, in terms of the retail, when would we start sharing the portfolio-wise breakup? Currently, I think this quarter also it seems to be more or less flat at INR 5,300-odd crores. No doubt [ affluent ] segment, we would be running that down and that is getting replaced with the new product segment. But if we can -- I don't know maybe when we can start sharing. So at least we come to know when the growth in retail will actually start up in China.

I think that will become possible... [indiscernible]

Exactly. We'll be happy to share once we have a sizable amount of 1/3. If the inorganic integration happens, all numbers, then a correct baseline would get set, then it would make sense for us to talk about it on a quarter-on-quarter basis. Right now, the baseline sales will be very volatile given the relatively small size, and there are known issues that you are appropriately calling on. That is the most important dynamic in the portfolio right now. All that will settle down a whole lot better once the integration happens. So we should talk at that point.

The next question is from the line of Bharat Sheth from Quest Investments.

Sir, I mean these unallocated capital, which is around INR 11,000 crores. So that is a current [ ratable ] value or it's the book value?

It's a book value, sir.

So would you like to share some at current market value?

So the current market value, the only difference which is going to come is on the Shriram current market value. Apart from that, the book value will be equal to current market value. And Shriram, we don't know right now as to what will be the realization. But it will be higher than the book value for sure.

Okay. On second thing, I mean CDMO business on a full year basis, which roughly contributes around 60% of the Pharma business and which we are saying is expected to grow at faster pace in medium term. So would you like to share how, I mean after the 3 years, I mean overall, when Pharma business is growing 15%, so what would be the contribution from the CDMO business?

Nandini, would you like to take up the question?

I think we won't talk about how each business grows, but I think the CDMO business will grow a bit faster as we invest in more capacity. And in the 2 acquisitions that we did this year for Sellersville and which we will close Hemmo in the next quarter, I think they will also add for growth.

So what we are talking 15% growth, that is for the organic. And this acquisition will add a further to growth in there. Is that correct understanding?

Yes. Yes. Yes.

Okay. And a question -- last question is for Mr. Piramal. So when you are saying that there will be a 2-listed entity, so both will be vertically splitted? Or Pharma business will remain as a subsidiary listed entity of the Pharma, Piramal Enterprise?

No, I think it will be -- they will be independently listed.

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

I have a couple of clarifications. So firstly, could you once again explain the Omkar deal, what happened, what went wrong and exactly what the steps were because there's a bit of misunderstanding. My other questions are what is our exposure to Lodha now because we were planning to split it into an SPV sort of exposure with completed apartments. So is that the reason why it has come below 15% of net worth? And my last question is that on Slide 19, where you all have given a breakup of the sales data over the last 4, 5 quarters, I notice that the sharpest recoveries in Mumbai and Pune, and that's obviously because of the Tam duty cuts. And in most of the other cities, the increase wasn't as much. So now with the Tam duty cut behind, how do you foresee the real estate sales across the top entity?

Okay. I'll take -- I'll take all the 3 questions. Let me start with Lodha first. So in March '20, we had an exposure of INR 3,130 crores at the holdco, as you are aware. And today, as we speak, in March, it is INR 2,637 crores, but the way to look at it is now very different. Out of INR 2,637 crores, INR 1,593 crores is now in an SPV with a onetime 1.5x cover of fully ready inventory, which we had spoken last time, which has actually happened. And the balance, INR 1,058 crores, is in the macro tech developers. Just as a matter of information, we have recently got prepaid in the month of April of INR 431 crores. So again, our holdco exposure has come down to now only INR 620 crores. And the SPV exposure is INR 1,530 crores. So today, our total combined exposure is INR 2,150 crores. And that's how -- so even if you look at INR 2,150 crores, it is less than 15%, to answer your question. Have I answered your question on Lodha?

Yes.

Yes? Then we go to your last question, and then the last, I'll come to Omkar. You are absolutely right, the quarter 4 sales were actually good all across. So let me put it very differently. MMR region, it was 2.5x of the normal pre-COVID level sales of our developers. Having said that, even the other regions which were outside MMR also clocked anywhere between, if I go granular between Bangalore, Chennai, NCR, et cetera, they clock anywhere between 1.4 to 1.5x pre-COVID. So it was not necessarily right that only MMR did well because the others also did pretty well. So while this was absolutely a super duper performance in MMR, having said that, even if you remove that, the fact that people are doing better in other regions than the pre-COVID level, it's also a good sign.

Yes, actually MMR [ also 50,000 ] last year and 70,000 this year. So over -- sorry, all top at cities went up from 50,000 to 70,000. So overall, it is a 40% increase.

And that data that you're seeing, around the data that you're seeing is that by industry level, not our client data. So don't get confused that it [indiscernible] [ outline status ].

Absolutely. I just wanted your sense that for the industry, how do you expect sales to be, not just for your clients [ saying they're good ], for the industry.

I would like to speak about my clients because it goes back to the fundamentals which we have always spoken about that simultaneously, there is a massive consolidation happening, which we have been speaking consistently for the last 3 to 4 years. And that's why I would like to again state that our developers, whether in MMR or outside MMR, are actually doing -- the minimum is 1.4 to 1.5x today because the stronger are becoming stronger and the other developers are dying. So I would like to restrict my answer to our set of developers. Going to your last question on Omkar, let me go slow and explain this to you. See, we had an exposure to Omkar in their -- under their leased property, which was at the land stage and we had already got development, I'd say LOI, as it is called in the SRA. So much earlier than all the problems which Omkar is now facing and it's in the press, we had envisaged that while the land is very valuable, it has already got the clearance of LOI. When you get an LOI, it means you have established the development rights. It's like an FSI, an SRA, it's all development rights, which is 67 lakh square feet. It's not small at all. It's a [ highway of ] assets. And because of the IBC risk, because the loan was in the holdco, the group decided to take over the land. As my colleague, Rajesh, was explaining to you, that since PCHFL could not do it on its own because of regulatory reasons, the loan was paid off by PEL. In fact, there was a full process which was run properly as per the guidelines. And PEL decided, the parent decided, the Board decided that we would rather pay PCHFL off and keep the assets and then monetize it. And that's the point I made to the earlier person also. That's the monetization exercise, all the planning and all the exercise from monetization now begins from '22 onwards. So over a period of '22, '23, you will see actions on RBR from PEL to monetize the land in some form or the other and get back the money and hopefully with some indirect accrued interest also. So we are not talking of only taking the principal out. Hopefully, we'll get more than that.

Okay. But the land belonging to... I'm sorry?

Yes. What was the question? And it's solely belong

The land has not been developed yet.

No. Now we will actually give it off to other developers. We'll cut the land and give you 67 lakhs on the highway. It's not small. It's a very valuable piece of land.

How much would the land be worth by your rough estimates?

The land -- we actually did this exercise, but I wouldn't give you the exact number, but it's far more than the value of the loan. I can only comment to that, that it's far more.

The next question is from the line of Praful Kumar from Dymon Asia.

One question on this Omkar. So this land is with PEL, with us now?

Yes, it is with us. With us.

Completely? So 100% with us.

Yes, they have stand -- yes, yes, they have stand already on it.

Okay. And what is the total exposure to this account?

INR 1,300 crores.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Most of my questions have been answered. Just on the DHFL side, is it fair to assume that DHFL transaction will take probably 6 to 9 months? And only after that, we will have some more concrete plans announced on the demo year?

Yes, it will be post the DHFL merger. Whether it takes 6 or 9 months or shorter, we can't say. NCLT procedure may take -- I don't know, maybe a couple of months. If somebody goes into appeal, we don't know. So I think [ latter ], it's very difficult for us to comment on how long the court takes. It will be -- it's not to be NCLT or whatever the next process is. So let us then wait. I wish I could tell you more, but [indiscernible].

Thank you. The next question is from the line of Jigar Valia from OHM Group.

My questions pertain to the Pharma businesses, and congrats on the good numbers there, especially sequential. Sir, the CapEx, $90 million to $100 million, you mentioned was for Grangemouth and which other plant? Was it Lexington or something else you mentioned? Sorry.

So the CapEx is for our facility in Canada at Riverview and Grangemouth. [indiscernible]

Understood. Understood. And within the CDMO, I noticed we had a lot of molecules which were on the late stage, et cetera. And I'm sure in the times to come, you'll see something there. But broadly, as of now, what would be the development to manufacturing mix, a very broad approximate? Is it 50-50? Is it -- or significantly skewed towards manufacturing? Or the other -- it maybe -- some color, broad color?

The average size of manufacturing contract obviously is much higher than a development contract. So overall development revenues account for nearly about 65%, whereas 35% is from -- sorry, commercial revenues are 65% and development is about 35%. And obviously, this has improved over a period of time.

Understood. Understood. A lot of the new products are largely coming on the biotech side. And we have almost probably 70%, 75% of the new pipeline could be on that line. Should that kind of change the mix? Or just skew more in favor of -- I mean is it that we need to do a lot of more small volume works with regards to the new pipeline? Or do you see the mix being stable? Or any direction on the mix 35-65 right now?

So as I mentioned, development a few years ago used to be about 10% of our revenues. Today, it's close to 35% of our revenues. And obviously, as you mentioned, there's a lot of development work which is happening, a lot of molecules in the clinic advancing to Phase I, Phase II, Phase III, which is eventually going to become the funnel for which ability to migrate into commercial revenues. So yes, this mix could increase and eventually will become the source of business for commercial revenues in the future.

Understood. Very helpful, sir. And my last question on this is a couple of years back, you had kind of referred to this [indiscernible] in U.K. plant and the [indiscernible] for bio catalysis. I just want to know did this go through and is it still functional?

So, no, this did not go through. In fact, the deal fell through almost about 4 or 5 years ago.

The next question is from the line of [ Pujwal ] from Quest Investments.

Sir, just wanted to understand what kind of investments are we looking in the consumer health care space for FY '22? And are we looking for inorganic opportunities during this time for the next year? Or is it basically only on our existing portfolio you would be doing branding exercises or brand extension?

So we are looking at a combination of all. One is organically, we are looking at how do we strengthen our existing brands. How do we do brand extension? How do we add new products which we have self-developed? So that is first part. We are also looking at acquisitions. If something is in the right value, we keep saying that we are looking at it, we would do it.

Okay, sir. And any quantum you can specify in terms of investments that we have planned for FY '22 in this space?

No, there is no specific quantum. It depends on really the opportunities. I mean we have a budget as far as existing organic growth is concerned. But for inorganic, it will depend on the opportunity.

Yes. Sir, I was asking for the organic budgeted, if you can share.

That we are not [indiscernible] we are doing. I think we will adequately fund this.

Okay, fine, sir. And secondly, sir, on Hemmo pharma acquisition. You did mention you're looking at 3x kind of growth. And if you can throw some light about how Hemmo Pharma is going to aid our overall CDMO space? And was it basically a client-driven request in terms of getting into the space? Or we were any which ways looking at this space very intently and we got this opportunity? If you can share some more details about this acquisition and the way forward?

Nandini, either you or Vijay?

I can take it. So we -- our work clearly on CDMO is that we look at magnets, which is, for example, capabilities that clients really want and that are specialized. So for example, the HPAPI, the Lexington sterile injectables. So those are kind of capabilities that are very specialized that bring clients to us. And we have been looking at peptides as additional capability that we wanted to add. And that's why we actually looked out for Hemmo and created the opportunity by talking -- we've been talking to Hemmo actually almost 4 or 5 years ago and it didn't go anywhere. So we were very aware of Hemmo. It was on our radar of interesting opportunities to look at. So when the opportunity came, we actually jumped on it. In terms of -- we see a lot of sort of synergies in between Hemmo and our other CDMO plants. For example, a lot of peptides are actually injectables. And we have one client already who was buying APIs from Hemmo and getting it filled in our Lexington plant. So we've seen that, that synergy actually existed before. We even bought the product. And when we did the client references, the clients are actually very happy to have a person and a company like Piramal [indiscernible]

Great. And can you just share your outlook state 3x kind of revenue growth. So what will exactly drive this? On Hemmo side, do we have orders in place or new products have been approved? Or how is Hemmo going to 2x, 3x kind of revenues, if you can share that?

I think one of the big things is that we will invest in capacity across because Hemmo didn't have the capability to increase capacity as much. I think that is one big thing. We've seen that already our BD inquiries from our existing customer base have increased because a lot of people didn't want to give it to Hemmo, API orders because it was small. So we actually see both some extra capacity enhancement as well as new orders from our existing customers.

Thank you. Ladies and gentlemen, due to time constraints, we'll take our last question from the line of Ravi from Naredi Investments.

[indiscernible] [ most of my questions ] you've answered them. So this is about the tenders [ affect Bangalore tech center ]. So what is being been there? And if you could talk, I mean could [indiscernible] anything. So what is your future outlook for it?

Yes. Thanks for the question. We are starting going already. We've got the core team that has already been hired there. And every day, we have new people joining. The team has already expanded to about 12 people now and continues to expand on a regular basis. What we are trying to do is tap into the talent ecosystem in Bangalore for 2 big areas. One is proprietary technology development and the other is big data analytics. So for both of those areas, while there is some level of talent that's available in Mumbai and Delhi and CR, but Bangalore is a place where we are seeing a lot of talent availability and a core ecosystem in place. And that's why we chose Bangalore as the location to set up a center of excellence. And we'll continue to make investments there. Of course, right now, given the forward situation on the work-from-home construct, it's not going to be as feasible. But very soon, the typical infrastructure, it going to be right out there and very visible. We are quite integrated into some of the talent ecosystems in Bangalore. So we'll continue to do that in both these areas of data analytics and proprietary engineering.

[indiscernible] what kind of partnering with [indiscernible] So what is the point of loans you are getting from them unlikely it [indiscernible] evolution. Maybe on, I think, an unsecured loan.

The average -- these are unsecured short duration products with an average ticket size of about INR 14,000 for purchase finance, in large part. And it is now a 4-month old, 5-month old partnership, and it's gearing really well. Of course, given the second wave of COVID, both ourselves and our partners are being very careful about how to deal with unsecured lending in this environment. So in April and May, we have -- we are going to be playing it cautiously. But till March, we had very strong growth. And we'll likely get back to that trajectory once what we see the achievements on the other side of the second wave.

As you mentioned, I think you guided INR 3,000 crores. We can look like [ the steering ], I guess. So could you provide like a breakup on that? Like how much would be like unsecured [indiscernible] any immediate products that you are planning?

We haven't done a whole lot of unsecured right now. I'd say that going forward, our intent is to continue to remain secure focused, at least for the next year or so predominantly our -- on core acquisition that would be the product side of things. Our main product, our affordable housing, [ on tap first ] housing, our lab, small business lending, gen food stuff. Those are going to be the key categories in which we do much of our business in the coming year as well. And we are also evaluating products in the -- in the space of education financing, unsecured business lending, [indiscernible] therapy and two-wheeler financing. Those are the product categories we're looking at for FY '22. We will evaluate them and some of them will make the cut in terms of becoming no loss for us in the coming year.

I just have additional one last question. [indiscernible] accretion are gaining any fixed capabilities, plus the loan underwriting tech platform or anything like that into loan [indiscernible]

We are building much of this ourselves. We're not acquiring capabilities of this product from the outside. We are building all this internally.

Thank you. Ladies and gentlemen, that will be 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 the call. In case you have more questions, please feel free to reach out to IR. Thank you.

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