Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '22 Earnings Conference Call of Piramal Enterprises Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations Officer from Piramal Enterprises Limited. Thank you, and over to you, sir.

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 Q1 FY '22 results. Our results materials have been uploaded on our website, and you may like to download them 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 Chairman, Mr. Ajay Piramal; Ms. Nandini Piramal, Chairperson, Piramal Pharma Limited and Executive Director, Piramal Enterprises; Mr. Rajesh Laddha, Group CFO and Executive Director, Piramal Enterprises; Mr. Khushru Jijina, Executive Director, Financial Services, PEL; 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.

Good day. Despite the headwinds from the second wave of COVID, we have delivered a resilient performance during the quarter. Our revenues remained largely stable at INR 2,900 crores, and this is amid reduction in the wholesale loan book, which is in line with our strategy of making our loan book more diversified and granular. Despite the stable top line performance, our net profit has grown by 8% year-on-year to INR 534 crores. We continue to maintain a strong balance sheet with our equity base now at approximately INR 35,000 crores, and our net debt has gone down by 50% since March '19, thereby bringing down our net debt to equity to 0.8 as of the end of this quarter versus 2x in March 2019. It would be a good thing to look at the journey of our Financial Services business since September 2018, when the financial crisis hit the NBFC sector. And our journey can be categorized under 3 phases. The Phase 1 is consolidation. We have now largely completed the phase of consolidation with significant process -- progress over the last 2 years. We have built a resilient business model in the wake of the liquidity tightening in COVID-19 and other macroeconomic headwinds. We have achieved 4 major outcomes in this phase, first, improving of our capital adequacy. We've raised significant amount of capital and deleveraged our balance sheet. Our capital adequacy ratio today stands at 39% versus 22% as of March 2019, making us one of the most well-capitalized NBFCs and HFCs in India. We have adequate growth capital for the next 5 years even after the completion of the DHFL acquisition. The second point is how we have reduced our loan book concentration. Our top 10 exposures have gone down by 30% since March '19 from INR 18,000 crores to INR 12,800 crores in June '21. Today, no amount exceeds the regulatory threshold of 15% of net worth. In addition, we have built conservative provisions. As of this quarter end, our total provision stood at INR 2,750 crores. That is 5.8% of our total AUM. We have diversified and shifted the borrowing mix towards stable, long-term funding sources. We raised INR 54,000 crores of long-term borrowings since March 2019, and replaced most of our short-term CP borrowings. As a result, we now have a much stronger ALM profile with significant positive ALM gap across all buckets. As part of our effort to diversify the borrowing mix, we raised debt through our maiden public bond issue in July of this year. This issue received a healthy participation from retail investors and HNI, and we could raise INR 804 crores. The Phase 2 of the journey of Financial Services business is our transition and a quantum growth. With the Phase I largely behind us, we are now in Phase 2, our transition from a wholesale NBFC to a well-diversified Financial Services business. There are 3 components in this phase. The first is the DHFL acquisition. This acquisition, I'm happy to state, has been progressing well. Our resolution plan received the approval of NCLT in June 2021. Post the NCLT approval, a Monitoring Committee has been formed, which includes members from the CoC, the administrator and members from our management team. As per the IBC law, the Monitoring Committee has a duration of 90 days from the NCLT approval to complete the acquisition, and we feel confident that we will achieve this. With the DHFL acquisition, our retail AUM is expected to grow by 5x, and we expect to become one of the top 5 HFCs in India. The second part of our transition is the reduction in the wholesale book. As part of our strategy of transitioning our book from a largely wholesale to a well-diversified Financial Services business, we are consciously bringing down our wholesale book. Our book has come down by 27% in the wholesale from INR 51,400 crores in March 2019 to INR 38,000 crores in June '21. We are also building an organic retail engine, a technology-driven, multi-product retail lending platform. In 2020, we embarked on the journey of building this technology-led retail lending business, which is digital at its core and digital at the customers' end. We are building this platform with next-gen technology capabilities with AI and machine learning deeply woven into the fabric of the business. In November last year, we launched our multi-product retail lending platform, and since then, the business witnessed a healthy traction. We also launched multiple retail lending products, thus expanding our product portfolio, and have formed partnerships with fintech and consumer tech firms. We have onboarded top quality talent from large Indian banks, global tech giants to take the business forward. Most importantly, as part of our journey, we have incorporated learnings from the current environment to build a sound business model for the post-COVID world. In fact, our new lending strategy of pivoting towards affordable and mass affluent categories in Tier 2 and Tier 3 cities has made our retail book more granular. The average sanctioned ticket size in retail for our secured lending products has declined from INR 75 lakhs to INR 20 lakhs. The end-to-end digital, unsecured lending now contributes 6% of new originations by value, and 75% of new customers originated into the Piramal retail franchise. All these initiatives will result in significant change in our loan book, with the share of retail lending moving closer to 50% in the near term. The third phase of our journey is to have a sustainable growth and profitability. First of all, in this third phase is the integration of DHFL and leveraging its vast network to grow the multi-product retail lending business in the future. With the DHFL acquisition, we would have access to a vast network of 300-plus branches, with majority of them being in Tier 2, Tier 3 cities with 4,900 employees and a sizable customer base of 1 million. Our teams will be working towards integrating our existing multi-product retail lending platform with DHFL network during the year. We aim to leverage DHFL's platform to cross-sell multiple retail products offered as part of our digital platform, thereby ensuring the continued future growth in the business. This would help us to actually increase scale in retail lending while addressing the diverse financing needs of the growing Bharat market. We now move towards the profitability in this next phase. We aim to deliver measured growth and profitability in the long run while maintaining our focus on risk management, asset quality, capital adequacy and our technology infrastructure and customer experience. The key factors that are expected to boost profitability in the near term post the DHFL transaction include an immediate decline in the cost of borrowing post the completion of the DHFL transaction as this transaction will be partly funded by NCDs worth INR 19,550 crores at 6.75%. Post the completion of the DHFL transaction, we will -- the leverage of our Financial Services business will be increased from 1.6 as of June this year to 2.5. Further, with the growth in the retail loan book, the leverage could easily increase to 3.5 in the near to the medium term. Increased loan diversification as well, we will have about 50% retail in the near term and growth will potentially lead into lower borrowing costs in the coming years. Our change in product mix with the expansion of the product portfolio and through differentiated higher-yielding products, we expect profitability of the retail lending business to improve in the medium term. Now I want to comment on our asset quality. The GNPAs remained stable Q-on-Q with no major slippages despite the headwinds from the second COVID wave and, in absolute terms, remained stable. Our wholesale book declined during the quarter, as I said, with -- in line with our stated strategy, resulting in a marginal increase in the GNPA ratio. Also, we did not see any material slippages or write-off in the first quarter despite the challenging business environment. The key factors that have resulted in the asset quality remaining stable on this quarter are, first of all, in the wholesale loan. The real estate sector saw a revival of demand in the second half of last year. However, in the first quarter of the current year, the real estate sector has been impacted by the second wave of COVID in April and May. The performance of our developer clients in the first quarter of '22, the sales declined quarter-on-quarter in line with industry. While sales dropped in April and May, owing to the lockdown, we have seen an improving sales trend in June and July. Our developer collections from homebuyers saw no major impact despite a quarter-on-quarter decline in sales. Collections at 85% to 90% of average of the past 2 quarters were the -- primarily because of the strong sales in the second half of '21. The construction activity and availability of labor, too, was not materially impacted, and we are now close to pre-COVID levels. However, given the potential risk of a third wave of COVID-19, we continue to remain vigilant across our portfolio and maintain conservative provisioning to take care of any contingencies arising in the future. On the retail loans, the collection efficiency saw some impact due to the partial lockdowns imposed in the second wave. In June '21, it has bounced back to 96%. That is nearly back to December levels. In July of this year, collection efficiency further improved to 98%, and bounce rates have normalized as well. Coming to the retail loans and DHFL, the collection efficiency at DHFL, we saw some impact in April and May, has also seen a healthy pickup in the month of June. In fact, the DHFL retail portfolio is performing broadly in line with our expectations. Our near-term focus now is to, first, effectively integrate DHFL with our Financial Services organization, ensure that the collections and asset quality of the combined entity remain healthy and generate synergies by cross-selling our innovative product by leveraging DHFL's platform. I now want to turn to the Pharma business. Our Pharma business delivered a robust performance during the year -- during the quarter. The business registered a 31% revenue growth during the quarter, delivering revenues of INR 1,360 crores. And the Pharma business contributed now 47% of PEL's top line for the first quarter. This performance indicates the strength of our business model in a challenging business environment. Our EBITDA at INR 170 crores was up 56% compared to the same period last year. Fundamentally, in our Pharma business, we observed seasonality in the EBITDA margin performance every year. A careful look at the trend over the last few years indicates that margins generally improves as the year progresses. The first quarter, our margins were broadly in line with that trajectory, in fact improved over the last year. Coming to each of the businesses in the Pharma space, our CDMO business grew by 17% during the quarter. We are witnessing a strong growth in the development order book, driven by robust demand of sterile fill finish in North America and strong demand for our API services across all geographies. We completed the acquisition of Hemmo Pharma, a peptide API manufacturer, during this quarter. We are carrying significant capacity expansion projects across multiple sites. Our integrated projects order book increased 8x from FY '17. An update in development program saw a 3x increase in the number of [ Phase III molecules ] from 10 in FY '17 to 30 in the current year. Coming to our hospital generics business, which largely recovered from the COVID impact and grew 43% during the quarter. We have now grown or maintained our market share in most markets and products. We saw strong sales of Sevoflurane as demand recovered in the U.S. and expansion of key products in Europe and East Asia. The revenue of the India Consumer Healthcare business grew by 73% year-on-year during the first quarter despite a challenging environment. The performance was also helped by strong growth in the COVID Care portfolio. We have witnessed a 40% year-on-year growth over the last 12 months, driven by our strategic initiatives. We have navigated the pandemic with agility. We have reinvested our profits for future business growth. We've launched 20 new products since March '20. We are now able to sell our products across 22 e-commerce platforms and are continuously investing in brand building through brand ambassadors for our key products. Each of our businesses in the Pharma space has a compelling plan for their growth. We expect to grow by around 20% in the current year. We have delivered a 22% EBITDA for FY '21, and we expect to deliver a similar margin for the full year. Additionally, we plan to do a few more acquisitions in the next 2 to 3 years. In summary, I would say in conclusion, our performance over the last 2 quarters reflect the resilience and the significant efforts made towards to us building a solid foundation for our long-term success. We remain cautiously optimistic for FY '22 and are in a stronger position to tap growth opportunities across both our businesses. I am confident that both businesses will emerge as 2 strong companies with a good runway for growth in the long term. Thank you.

Operator, we can take questions.

[Operator Instructions] The first question is from the line of Kunal Shah from ICICI Securities.

Yes. Congratulations for the resilient asset quality in this quarter as well. So 2 quick questions. The way we have highlighted in terms of net debt to equity post DHFL transaction is going up to 2.5 from 1.6. So that indicates in terms of maybe the net assets getting added 16-odd thousand crores. If you can just highlight maybe what is the kind of the retail plus wholesale mix and what is the kind of markdown which we are taking. And ideally, what could be the structure which we can see that -- now most of the -- I think, the approvals are in place. So that's the first question.

Yes. So I think answering about the net debt to equity, we will be adding about INR 19,500-odd crores of debt versus the DHFL transaction. So that debt will get added to the overall debt. And therefore, our leverage will increase from roughly about 1.62 to about 2.5. As far as the retail and the wholesale mix, et cetera, DHFL book is concerned, we will be doing the purchase price allocation now based on our total consideration of INR 33,500-odd crores. And at that point in time, we'll be able to share the exact number in terms of how we are going to allocate to the retail book and wholesale book of DHFL. Also, you wanted to know about the process, you said?

Yes. In terms of the structure, so will it entirely -- maybe wholesale plus retail will get merged with our entity or there are like different structures which we are evaluating?

No, no, no. The structure is already finalized. In fact, it's a plan. It's a part of the overall resolution plan. What we have proposed and what has been approved both by CoC and the regulators, including RBI, that Piramal Capital and Housing Finance company, which is our company right now, will be merging into DHFL. And therefore, by that merger process, DHFL will become 100% subsidiary of Piramal Enterprises Limited. And the -- it will -- the shares of DHFL will get delisted, and the existing entities also will get captured. And we will be issuing -- basically, PCHFL will be issuing INR 19,500-odd crores of NCDs to the existing lenders of DHFL.

Name will change.

And of course, we'll change the name of DHFL, too. We'll try and get Piramal Capital name back.

Sure. Okay. And second, in terms of -- if you can just highlight the asset quality. Stage 3 has been very steady. But in terms of the restructuring last time, you said it was INR 1,700-odd crores, any more restructuring or what is there in the pipeline. And the movement in the Stage 2, did you see some sales building up on the Stage 2 or it was maybe as stable as Stage 3?

I'll take that. Basically, again, there has not been any significant movement in this quarter because as we have been sharing with you all from the last -- from the time this first COVID has come, we have been doing the stress testing. Again, if you see the major were 2 hotel deals which moved to Stage 2. Again, there, I want to qualify that the value of that asset remains. It's just that we wanted to move it because we saw some stress in that portfolio, not that the asset -- the value of the asset remains. So we just moved it to Stage 2. And actually, Stage 3 was a very small deal which we moved to Stage 3. Again, I can confirm that the value of that will be fully recovered. So there's not going to be any worry on that.

And restructuring?

What's your question on restructuring?

Any additional pipeline or something which we will look also because there is...

No, no, no.

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

Congrats on a great set of numbers. Sir, first question, just to the -- extension to the Kunal question. We would be acquiring assets of roughly INR 60,000 crores and paying around INR 33,000 crores. So how the difference would be recorded at the time of merger, around INR 27,000 crores?

So we will be restating the -- so currently, whatever is the book value of DHFL, we will be restating those values in our books or in the books of PCHFL based on the fair valuation of all the assets of DHFL. That will include the retail, wholesale and everything else. We -- now we will record it at INR 60,000 crores or INR 70,000 crores, whatever the carrying value of those assets are there in DHFL's book. We will be doing purchase price allocation to these assets based on the fair valuation of realizable value of these assets into our books.

Okay. So is it fair to assume there would be a decent amount of capital reserved that could be created because of this transaction?

There will not be capital reserve, but there will be some amount of provision which will come. So that's the outcome which is going to be based on the purchase price allocation, as I said.

Okay. And are we going to [indiscernible] benefit from the losses that DHFL has recorded in the past?

DHFL has recorded an insignificant -- they've not recorded tax losses in their books right now. But those -- whatever markdown we are going to do is get those tax losses. How recording, et cetera, will be done, we are still working on those. As we mark down the numbers, those losses will be available to PCHFL.

So Alpesh, we will be able to give you more understanding in detail once we announce the transaction upon the completion of this whole thing, the entire process. So at that time, we'll be able to give you more clarity on some of these things.

Got it. See, another question [indiscernible] on Slide #16, then -- where we show that the wholesale book declined by around 27% from March '19, right? And there is a footnote there that it does not include the assets taken over or the AIF outstanding of around INR 4,400 crores. So how this entire thing evolves in the terms -- this entire INR 4,400 crores is our share or the total amount of assets which have been shown [indiscernible]. How does it work?

So it's less than 50% [indiscernible]

So around INR 8,000 out of the INR 51,500 crores. And so the difference which is around INR 14,000 crores, INR 15,000 crores, INR 8,500 or INR 8,800 crores transferred to AIF. And there would be certain [ asset tightness ]. Last quarter, we talked about around INR 1,300 crores, INR 1,400 crores related to the Omkar exposure, and INR 5,000 crores will be the proper reason in that [indiscernible]. So is my understanding correct?

Yes. Alpesh, I'll take that quickly, and we can confirm that number to you, but this includes our 50% share in the AIF, which we created with Apollo. It also includes the [ Majal ] transaction, which we explain to you all during the March results. So it's a combination of these 2. But our share in AIF is 50%.

Okay, okay. And last question, related to the fintech partnership or the consumer-type partnership, are all the partnership exclusive to us? And if not, then what are the terms that -- and what ensures that we get the first right of refusal for the loans which have been originated by those [indiscernible] companies?

Jairam, do you want to take that?

Sure. No, Alpesh, these are not exclusive partnerships. There are no exclusive partnerships right now in the fintech world. And the way to actually think about it is there are going to be a few different lenders on the platform. Each lender is going to have a set of products available and a set of tech linkages or APIs that are set up. The APIs that work the best or that gives the most seamless digital experience are the ones that will end up getting a lot of the business. You have to assume that you are doing your diligence from a modeling perspective and a credit risk management perspective at your side. In general, there is a lot of infrastructure that is put in place to make sure that there is no cherry-picking of assets. Not just us but every bank in the deal is going to be making sure that there is no cherry-picking of assets. So cherry-picking is very, very rare. That's not something that one should worry a lot about. What one should worry about is, are -- will you be able to give the best and most seamless integration to the customer because that's when the first round of leads will actually come through to you rather than the leftover leads.

Okay. And Jairam, for consumer, you are the face, right, or consumer? Is it the Piramal Enterprises which is...

It's both, Alpesh. It's both the lender as well as the fintech party. So the consumer can download my app and actually see everything, that the consumer can see some of the details on the customer-facing app as well. So it's both. The customer signs, of course, the agreement with -- just with us. And all the loan information, et cetera, and the loan pages will all be branded Piramal, but they can actually access these particular loans details usually on the fintech platform as well.

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

Just on the Pharma side, for the quarter, how much this Hemmo Pharma would have added? Any ballpark number you would like to share?

So Hemmo Pharma, the transaction closed on 22nd of June. For the quarter, the revenue is just INR 5 crores. So it's been significant overall from the modest performance.

Got it. And accordingly, also if you could just extend it for the outlook for this Hemmo Pharma in terms of integration with Piramal.

So the integration activities right now have commenced, and the management teams are working with Hemmo's management for execution of the plan for the current financial year. And in due course of time, we would also be merging Hemmo as a retail entity with Piramal Pharma. Our business development teams have already commenced selling [ our site ] capabilities both from a contract manufacturing side as well as from a generic API side to all our existing customers.

And just secondly, I would like to understand the seasonality nature of CDMO business.

So historically, we have seen that a lot of our contract manufacturing customers, they do tend to have higher [ offtake ] in the second half of the year, which is after September. It's typically when they have a lot of requirement for commercial volumes. And that's the reason why you see that a lot of sales and, therefore, higher quantum of margin happens in the second half of the year. And this you will observe last many years, if you pick up the results of Pharma business, you will see that, that kind of [ typical ] trend is noticed.

And just lastly, about the 2 orders -- just lastly, on the 2 orders which you have won, which are more than $10 million, this would be spread over what period?

So the one which is there in Lexington would be delivered within this fiscal year. And the second, which we [ had won for us ] with one facility to a significant extent would be delivered within this fiscal year, and the balance would move to the next fiscal year. These are dependent on the other operational aspects also, but we do expect that split to happen between current year and next year, 50-50.

Got it. And just lastly, while you -- while the margin guidance is given, would it be possible to share the overall revenue outlook as well for FY '22?

So we have already guided that revenue growth will be in excess of 15%.

20%.

20%, we already guided.

The next question is from the line of Abhijit Tibrewal from Motilal Oswal.

Sir, I mean if I hear all the discussion on DHFL, right, will it be fair to say that at this point in time, maybe we are not in a position to disclose the net accretion, which will be there in the loan book?

Net accretion to the overall loan book will be to the extent of about close to about INR 30,000 crores. But as I said, the allocation is yet pending, which we had to do for a different set of assets which DHFL has, including the insurance take, et cetera. So the allocation part is still pending. It will be INR 30,000 crores to INR 32,000 crores net accretion of the assets -- total assets.

Sure. The second question that I had is -- I think one of -- because Mr. Chairman also said that after this acquisition, maybe it will become among the top 5 HFCs in the country. So I think -- I mean with this transaction, I'm not sure if you will be getting that deposit license that DHFL has. So this would mean maybe you will have to apply for a deposit license separately now? Or any thoughts around that?

As we speak, deposit-taking license still continues with DHFL. It's just that RBI has told them not to accept any deposits. We still believe or we still hope that we will get it. What we have been told is that we have to go back to RBI after the process is completed. So we are still hopeful, but let's see.

Sure. Sir, and the last question that I had is because we've been guiding investors that we will be looking at a separate listing of Financial Services and Pharma business, I was just trying to understand, I mean, what is the structure of the listed financial entity could be like because a large part of your -- so the DHFL loan book will come and sit in, in PCHFL, which is -- obviously will be merged into DHFL. And then you'll also have this multi-asset platform, and I'm guessing you'll want to kind of park all the other products, which are non-HFC related in your NBFC. So when it eventually gets listed, how will it work? Will it -- the HFC maybe get listed and you'll have an NBFC subsidiary which will house your multiproduct platform products? Or how will it work?

So I think -- first thing first. I think Pharma demerger is the simplest one because that's a straight vertical demerger. After that, what will be left with is Piramal Enterprises Limited, which is a listco. And underneath that, we will have Fininvest, which is an NBFC, as you rightly pointed out, and we will have this merged DHFL into PCHFL, which is an HFC. We are still figuring out as to what will be the best structure from a regulatory standpoint because there are regulatory requirements which an HFC needs to fulfill in terms of retail mortgages, in terms of overall real estate lending, et cetera. So we are still figuring out as to whether it makes sense to have NBFC, HFC separately, whether to merge those, et cetera, et cetera. But I think we are on the drawing board. As Hitesh mentioned that once this merger is completed with DHFL, we will then come back and probably announce as to what is the structure we are going to follow. So this will happen into 2 parts. Pharma, as I said, is a simple one. But this part, which is more dominated by regulations, we had to find the right choice and right answer at this stage.

And I'd just like to add one sentence that in all of this interest of minority shareholders will definitely be taken care of and protected.

Sorry. That is -- when this -- one last question to Jairam. Maybe if you could remind us what are the new products that you are planning to introduce in FY '22. And is there any thoughts at all around how you plan to cross-sell some of your retail products, organic retail products with DHFL customers?

Yes. Abhijit, absolutely. Let me take the second question first. Yes, 100%, we plan to cross-sell the rest of our retail products to DHFL customers. In fact, it would be our intention that the cross-sell should start pretty much in the very first quarter post the integration. So we are making all the plans towards that. We are coming up with our -- coming up with both the technology as well as the cross-sell propensity models, et cetera. So I'm fairly confident that we'll be ready to start cross-selling some of our products particularly on the unsecured, shorter duration side to the DHFL base pretty much in Q1 post integration. Now in terms of what is our sort of product mix that we are sort of thinking about, needless to say, the moment the integration gets completed, our retail business will become very heavily home-loan-dominated. So let's say about 80% will be residential home loans. About 10%, 15% will be loan against property and some other sort of property-backed lending. And there'll be a little bit of other stuff, right? In general, our belief is that going forward, we want to still retain -- or in the foreseeable future, given the size of the DHFL transaction, you will probably still see secured businesses, whether it is housing or LAP or small business lending or car finance, used car financing, et cetera. All of that put together would roughly be about 80%. And some of the end-to-end digital unsecured lending stuff will probably be around 20% of our book. It's probably where we are headed. In terms of specific product categories, used car financing is our most recent product category, which we launched last quarter. We are putting a lot of focus on that. We've got now 2 platform tie-ups there. We're tying up with 2 more. And then we are also starting to do on-field, physical tie-up with dealership. So that's an area we're putting a lot of focus on. We're also keenly evaluating the 2-wheeler financing and education financing space, where we believe there are a lot of opportunities. So we will see how that goes. We've not made up our minds whether they go along -- and yes, we might do a few pilots, but those are areas we are evaluating very, very closely right now.

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

Sir, congratulations on the resilient set of numbers. My question is related to the net interest margin. Sir, the NIM for the financial year 2021 was 5.6% but has gone down to 4.5% in Q1 FY '22. What is the view going forward on the NIMs?

So if you want to compare -- so let me start by saying that as a strategy, we have said and we are doing -- we are following that strategy where we are saying that we will be reducing our wholesale book. If you compare first point, the yield and the margin business in March quarter, then you'll find that we are almost at the same level or slightly better than March quarter. As we're reducing our wholesale book, so the mix of the book is changing as the structure deals are going away, which were at high yields earlier. And the fresh investments which are happening are happening on a very minor scale but they're happening for [indiscernible] massive and much more stronger deals, so to say. So that's where you will find that yields have come down. But whether it's last quarter, which was March '21, now they are stable. So if you compare with June where from that quarter on the book has come down and so as the lead -- but if we look at the March last quarter, they are stable or slightly better than March quarter.

And just to add to what Rajesh said. So we have consistently been saying about the strategy that the wholesale book will come down, the single borrower will come down, which we are achieving quarter-on-quarter. Also, what -- to add to what Rajesh said, we have been also consistently, quarter-on-quarter, saying one thing that we are collecting a lot of money and we are also using it to complete our other projects because in real estate, you need to complete the project. So as our portfolio becomes more and more and more mature, the interest rates will come down and -- which is actually a good thing ultimately because the portfolio becomes far more safer.

So the view is that going forward, the NIMs will be maintained?

Yes. More or less, it will be maintained, yes, as of now, yes.

Yes. Sir, my second question is related to the ROE. What can be the expected -- can it reach double-digit in '22, '23?

So I think you must appreciate that the last 2 years' focus has been around balance sheet strengthening and preserving cash. And all what we have said has been done in the last 2 years in terms of balance sheet numbers and ALM, et cetera. As far as ROEs are concerned, if you see even this quarter -- and it took us a little while. But if you see, the cost of borrowings are now coming down this quarter. The cost of borrowing has come down from 10.8% for the whole year last year to about 10.1%. As soon as DHFL happens and they are going to issue these INR 20,000 crores of liability to the lender -- existing lenders of DHFL, our overall cost of borrowing will drop to about 9.2%, 9.3% immediately. To add to that, we -- our incremental borrowing, what we are doing currently, is in the range of 8.50%, 8.75% level even on DHFL balance sheet. And we will be going for -- are going to be pitching very strongly for a rating upgrade because our concentration between retail and wholesale would become 50-50. So the minute we get a rating upgrade, another 50, 60 bps or [indiscernible] 50 bps will get applied to the entire borrowing. So it will come down from that level onwards, but that's like 6 months away. So it's coming down. So that's going to make a major impact on ROEs. Number two, as our debt to equity improves, as Mr. Piramal also said that, immediately, with DHFL merger, it's going to move from 1.6 to 2.5. And as our book grows, that's going to get funded through debt. And therefore, the debt to equity will move from 2.5 to 3.5 in say, 12, 15 months' time. Our product mix also is going to change, as Jairam was mentioning, that's going to improve our yields in terms of retail lending towards the products which are going to get a higher yield. So a mix of all these 3, we anticipate that ROEs will -- from this level should be definitely double-digit in the near future.

Next question is from the line of Prakash Agarwal from Axis Capital Limited.

My question is on the growth guidance for the Pharma business. So we grew about 31% for the quarter, and we also would have a more full consolidation of the acquisition. We are talking about some acquisitions over the year and years after. So are we talking about 10%, 12% growth for the remaining 9 months? I mean it works out to be around 10% kind of growth.

If you're considering the full impact of the existing acquisitions, then that accounts for about 5% to 6% of the total growth that we are talking about.

Yes. I mean some growth from any future acquisition and Hemmo acquisition and the fact that you've already done 31% for the quarter?

Our growth guidance does not include any future acquisitions. It's only based on what we have businesses in hand right now.

Yes. So even if we take just Hemmo and 31% for the quarter, Q1, the remaining 9 months, are we being too conservative? Or this is...

Prakash, we would rather be keen to beat the guidance than be very close to the margin or something like that.

Okay. No, I was just thinking if there is any competition in any product...

As per policy, our company would tend to give conservative guidance and we'd perform better than the guidance that we generally give. So that's the policy that we generally try to follow.

Okay. And second observation was on the margin trajectory. So as you mentioned and shown in the presentation also, it picks up given the seasonality. So seasonality is more so in which business? Is it only the CDMO or you have this Complex Hospital Generic business in that also? And I understand the share is already high in these 2 businesses. So it's got to do with operating leverage, right? So the top line is also higher. So I'm just trying to connect the dots.

So the seasonality is primarily in our contract manufacturing business, though if you look at the other 2 businesses also, you will see that generally, the sales towards the second half is typical. Overall, at the Pharma level, about 45% comes in the first half and about 55% comes in the second half. From an operating margin perspective, you will also see that it's about 35% in the first half and 65% in the second half, but those are primarily driven by the contract manufacturing business.

Next question is from the line of Tejas Parekh from Citi.

So post DHFL integration, your branch network will reach to close to 300. So if you could provide some color on your branch expansion strategy. And the second question would be if you could provide us the current restructured book. Where does it stand?

Jairam, do you want to take that branch...

Yes, yes. Let me take the branch thing and then you can jump in, Rajesh. On the branches, yes, we will start with about 300-odd branches of DHFL plus our existing branches. And we've stated this a couple of quarters ago as well and have restated that our intention is in the next sort of 3 to 4 years, we want to be present in about 1,000 centers in the country. So you will us expanding on that. Now the 1,000 centers might not necessarily need 1,000 branches. It can be a little bit less than that, but you are looking at a significant expansion of the branch base even post DHFL over the next 3, 4 years.

And it would mostly be concentrated in the Tier 1 and Tier 2 cities?

No. Tier 2, Tier 3 and Tier 4 cities, Tejas. Tier 1, likely, we'll not be doing a whole lot.

Okay.

Let me take the second question on restructuring. In fact, I forgot to mention to Kunal Shah also this question which he had asked. And last year, we had actually taken 4 accounts in restructuring. And as we speak today, ultimately, we only did 2 accounts, one in real estate, which is around INR 158 crores, and the other is the Mytrah Energy where all the lenders, there's a restructuring. To tell you what is happening on the ground, the real estate project actually has started once again, and I think we would be actually finishing the project in December '21 itself. Coming to Mytrah Energy, we had said this last quarter also that we were getting ready to put this asset and company up for sale because -- with that interest in renewable energy again today worldwide. And this is one of the few assets now in India which gives a real good scale for somebody to take over. So that exercise has already started. In fact, we should be receiving, before the end of September, the nonbinding bids. As of today, more than 15 top infra renewable companies have signed the NDAs for looking at this company. So this is the status of those 2 restructured accounts.

So sir, one, you said was INR 158 crores. And the other one, the Mytrah Energy, what...

INR 1,062 crores. And both are active accounts. They are not NPAs.

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

Congratulations, Mr. Piramal and Piramal team. Sir, my question are -- first is on the Pharma side. When we are talking about the Hemmo margin, is that a fair understanding -- is that higher than our overall Pharma business?

Can you please repeat the question?

See, Hemmo margin, which we acquired in this June '21, is that better than the overall Pharma business?

So the overall margin profile of Hemmo is higher than what is the rest of the Pharma business. For this quarter, Hemmo is insignificant in terms of overall financials. As I mentioned, it's just INR 5 crores in terms of sales.

No. I understood. But going ahead, we are also maintaining a margin of same as FY '21 level when our generic business, which is a higher margin, were lower. So with growing all these 2 business -- so don't we think -- is it not fair to understand that margin may go up?

So there are 2 things. One, of course, is Hemmo currently constitutes, let's say, 5% of the total sales of our Pharma business. Secondly, the growth in the margins in the quarters ahead is largely driven by enhanced sales that will come in, in the second half of the year. Also, as we've already given a stated guidance that in our Consumer Products business, we will be significantly increasing our sales promotion in the form of reinvesting the EBITDA so that we can get higher, exponential top line growth. So to that extent, we will see erosion of margin as far as that Consumer Products business is concerned. So that's why we've given guidance of overall maintaining margins nearly the same level as it was in FY '21.

And second point, with a lot of new products are coming in Phase III and which will start contributing over time, so do we think that over a period, a couple of 2, 3 years or this seasonality will not be much there?

So it is difficult to predict in terms of seasonality whether all of these Phase III molecules [ moves to commercial ]. Ultimately, seasonality is driven by the fact that when is the customer actually taking the products for, manufacturing the end formulations that they're in, and it depends upon their demand requirements. So products moving commercial from Phase III is not necessarily an indication of the seasonality going away.

Okay. And is it a fair understanding to our previous participant question, the split of the company where Pharma will be disintegrated and will be listed separately? So a shareholder of Piramal will get the share of Pharma business. Is that fair understanding?

Yes. Existing shareholders of Piramal Enterprises Limited will get shares of the Pharma -- Piramal Pharma Limited separately.

Okay.

[indiscernible] sorry.

Okay. And last coming to this technology platform, so one is that we are partnering. And second, is it fair understanding that we are also building our own platform?

Jairam?

Yes. Absolutely. That is the right understanding. We are building our own platform. In fact, we have built our own platform. We took 6 months, 7 months last year before we went live to actually build the platform. And as Chairman mentioned in his opening remarks, we have put together a very strong team with -- of engineers based out of Bangalore. So we've got a full team in Bangalore, which does our own engineering. So a lot of our software development, we are doing in-house. And so we have the intention to use that team to do all of our platform development. So for example, in this quarter, we went live with our customer service app for our existing customers, existing Piramal customers, and that app went live and we were able to develop it ourselves within 90 days. So it is something that we -- it's a technology product that we just created ourselves without any need to work with an external party or partner with anyone.

So is it fair understanding over a period, once our full app will be in play, we may not go for a partnership and we'll leverage our whole business through our own app?

I'd say that there are different kinds of needs that are fulfilled by different partnerships. Each partner has their own customer access and distribution model. So you do want to use some of their strengths as well. So there will be some things which we will just do ourselves, which will probably be the bulk of it, but there will be niches where you want to leverage the strength of existing partners.

In that scenario, how do we cross-sell, I mean, for our customer on the partner platform and the similar -- same customer on our own app?

See, when we get into a partnership, we work out all the commercial arrangements with respect to customer ownership right up-front. Usually, the arrangement is that for the specific products that we are selling -- let us say it's a short-duration unsecured lending product that we are selling with a partner, that particular product, if we want to cross-sell again to that customer, we will probably go through the same partner route. But for every other product, we have full liberty -- we are at full liberty to go ahead and cross-sell to the customer on our platform.

Okay. And how much investment do we plan because we saw in annual report that last year, in these 2 technology company, we had incurred a loss of...

I request you to kind of join the queue again as we want other people as well to ask, yes.

The next question is from the line of Saket Mehrotra from Tusk Investments Limited.

I have a question for Jairam. Jairam, could you throw some light on the granularity of the retail book mix? And in terms of these fintech partnerships that we have, say, for the secured lending, just wanted to understand how do the commercials work? Do you get something which is up-front? And how are the risks sort of managed?

Sure. So the granularity question first. The business -- the Chairman referred to this as well in his opening remarks. The granularity has been increasing quite substantially ever since we started this sort of -- this new gen business. On our home loans business, our average ticket size has now fallen to about INR 20 lakh home loans and small business all sort of put together. Our average ticket size is now about INR 20 lakhs for new actions that we are doing, as opposed to the INR 75 lakh average ticket size that we used to have in the sort of previous generation of our business. So in this post-COVID environment, the new business that we have launched, it's a INR 20 lakh average ticket size business from all of the secured side. As far as the partnerships-driven or direct-to-customer digital unsecured is concerned, there, our average ticket size is INR 17,000. So it's a much, much smaller ticket size that it is -- and obviously, it's a much shorter duration as well, anywhere from 6 to 12 months. So that's the way we are looking at these 2 pockets. Now to your question of risk management in unsecured, if it is direct-to-customer unsecured from our side, then it's pretty straightforward. You know how that works. I'm not going to repeat that. In a partnership-driven model, what tends to happen is there is some partnership credit scorecards that are used, and we have our own credit scorecards that we overlay on top of that. And that combined thing is what is they use to actually underwrite the customer at the front end. Usually, in the initial stages of the partnership -- and right now, we are in initial stages with our partners. So in practically all of these cases, there'll be some sort of an [ FLDG-type ] arrangement, where initial losses are covered through the partnership arrangement. Once we develop enough confidence in the pipeline that we are seeing through our partners, that's when we actually go past that and start taking the entire risk on our balance sheet.

Okay. And would you be in a position to sort of -- maybe tell us the split between the products. Or is that too detailed?

Not right now. We can talk about it offline at some point if you want.

Okay. I have a question on the pharmaceutical business. We had -- we have sold our business to Abbott a while back. So is there -- and we've spoken about the priority of reentering the domestic formulations business. So the question is, do we have any pipeline for doing some sort of inorganic acquisition? Or are we doing it now? And is there any non-compete that we have with Abbott?

The last thing first, the non-compete was there, got over in 2018. We are free to go back in domestic market. We keep looking at opportunities as far as inorganic opportunities are concerned at the right time and the right value, et cetera. We will decide. But pipeline is there. We keep evaluating those opportunities.

[Operator Instructions] The next question is from the line of Anand Shah from Jay Anand Securities.

Sir, I have just one question pertaining to DHFL. As per the approved resolution plan, the company has committed to infuse equity of INR 3,800 crores in DHFL within 1 year. How the company plans to infuse this amount of INR 3,800 crores, if you can throw light on that.

So as it is -- when we're acquiring DHFL, we are supposed to be paying INR 14,700 crores of cash consideration out of INR 34,200. And out of INR 14,700 crores, the cash available on the DHFL balance sheet will be about INR 10,000 crores, INR 10,500 crores. So -- as a matter of fact, we will be paying from PCHFL balance sheet close to about INR 4,000 crores on day 1 itself.

Yes. So sir, this would be the capital -- equity capital infusion that could happen?

It's a return that -- it will be including [indiscernible]. From restructuring standpoint, it doesn't have to necessarily go in equity because in balance sheet, we already have enough network. So it will not go in equity. It will go as infusion.

Thank you very much. Ladies and gentlemen, due to time constraints, that will be the last question for today. I will now hand the conference over to Hitesh Dhaddha for closing comments.

Thanks, everyone. If you have more questions, please feel free to reach out to the IR team. Thank you.

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