Piramal Enterprises Limited (500302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Piramal Enterprises Limited Q3 and 9 Months FY '22 Results Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations Officer from Piramal Enterprises Limited. Thank you, and over to you, sir.

Hi. 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 Q3 and 9 months FY '22 results. Our results material 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 Chairman, Mr. Ajay Piramal; Nandini Piramal, Executive Director of Piramal Enterprises; and Chairperson Piramal Pharma Limited. Mr. Khushru Jijina, Executive Director of Financial Services, Piramal Enterprises; Mr. Jairam Sridharan, Managing Director, Piramal Capital Housing Finance; 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 policy. Over to you, sir.

Good day. I hope you are all are safe and in good health. This quarter, we have developed -- we have delivered a strong performance. The revenues grew by 20% year-on-year to INR 3,816 crores driven by solid performance across both businesses. Financial Services gross income has grown 25%, and pharma revenues were up 15%. Despite the ongoing transformation within Financial Services, the Q3 normalized net profit grew by 14% to INR 888 crores. I just would like to give you an update on the demerger announcement that we had done last quarter. This was approved by the Board, as you are aware, in October last year. This demerger is expected to simplify our corporate structure as a 2 separate pure-play entities, enabling better understanding by the investor and analyst community, resulting in the right value discovery for both businesses. We expect to complete this demerger in Q3 of FY '23, subject to various required approvals. Another significant development in the last quarter has been the approval of the merger of DHFL and our Financial Services business. And this has been a very value-accretive acquisition for us, and it has enabled us to achieve significant growth. It has materially given us a further impetus to our business ambitions and targets. The overall loan book grew by 31% year-on-year to INR 60,600 crores, and our retail AUM grew 4x year-on-year to AUM of INR 21,500 crores. The share of the retail AUM has also increased. The retail share has gone up to 36% from 12% as of March 2021. Besides that, we've got enough now scale. Significantly, we have increased our presence with 1 million life-to-date customers and 301 branches across 24 states and union territories. Also, this acquisition creates granularity of one of the leading housing finance companies in India, which is focused on affordable financing with an average ticket size of INR 16 lakhs. This merger and acquisition has been value accretive from day 1 of the acquisition itself. If you look at it, the yield of -- on the DHFL book is over 11%, and the cost of borrowing is nearly 7%, 300 basis points lower than the average cost of our borrowing prior to this acquisition, creating a healthy spread of nearly 4%. Since the loans have already been sort all operating costs have been incurred in to build this book. The potential upside is from recoveries. And additionally, we have got enough balance sheet securitized pool of INR 20,000 crores, generating a fee of 1.6% per annum. All this growth has been achieved without infusing any additional equity. During the last quarter, we have started the integration process and have made significant process -- significant progress. We have retained the 3,000-plus employees, which were there in DHFL. We have now added, in the last 4 months, another 2,000 employees. The new loan originations have now restarted at most of the DHFL branches and customer-facing digital assets are fully integrated and at large scale, IT asset upgrade program is underway. In retail lending, we have now adopted a 2-engine strategy, which will drive scale and growth. The first engine is Phygital, secured lending with a dominant position in affordable housing, mass affluent housing and MSME loans, which contribute over 90% of the retail AUM. The second engine is of Embedded Finance that will include small ticket and short duration loans such as personal loans, purchase finance, merchant BNPL, et cetera, originated through digital channels and partnerships, which act as a customer acquisition engine, adding over 90% of the new customers. So whereas the first engine was the growth in AUM, the second will be a significant growth in new customers. In line with our new strategy, we continue to scale up partnerships with fintech and consumer tech firms to acquire customers at scale at a low acquisition cost. We are today live with 10 partnerships in several segments. Disbursements. Through the activation of multiple branches and customer acquisition under the twin-engine strategy, our disbursement grew 5x year-to-year to INR 739 crores, an improving mix of disbursement towards both secured and digital loans enabled us to improve our disbursement yield to 12% in quarter 3 versus 11.3% in quarter 1. We are significantly investing for future growth. And this, you will see in the next few years, we continue to focus on capacity building and investing for the future. We have assembled a best-in-class leadership team over the last few quarters across various businesses. We target to have a presence across 1,000 locations, rolled out 2,000-plus job offers post the DHFL acquisition in September 2021. We have made significant investment in technology and analytics hires, hired nearly 200 people in the technology and analytics team and have set up a digital center for excellence in Bangalore. All these initiatives should enable us to significantly increase the disbursement in the next 12 to 15 months. I will now come to wholesale lending. The real estate sector is picking up well, and credit offtake by corporate seems to be improving to the CapEx push from the government. Significant consolidation has happened across NBFCs and wholesale lending and developer financing business. We are among one of the few NBFCs that have continued to remain strong even after the prolonged crisis environment. We aim to cater to large addressable market. We'll soon start executing new deals in our wholesale business. Our new approach to wholesale lending will be more calibrated as we will give smaller loans and make the loan book more granular and diversified. In future, we will focus on cash-flow backed lending and high loans will be done under the fund structure. Overall, the FS business' asset quality has stood the test of time. GNPA stood at 3.3%, marginally up Q-on-Q due some impact of the RBI circular and NPA classification and slippage of 1 account from Stage 2 to Stage 3 in our wholesale book. our provisioning remains conservative at 4% of AUM at INR 2,655 crores. We believe this provision should be adequate to meet any future contingencies. In summary, as far as Financial Services is concerned, I'd like to point out to you that as a company, we have grown organically as well as inorganically. And we have done this throughout our history. We have done more than 50 acquisitions so far and almost all were successful. We will continue to look for M&A to boost our growth post the DHFL integration. With the debt equity of the Financial Services business at 2.5x and near-term monetizable investment in Shriram , et cetera, the company has significant firepower to continue to carry out value-accretive acquisitions as well as organic growth in the future without needing to raise any additional equity. As I said before, we plan to increase the share of retail loans to 2/3 in the medium- to long-term. We remain committed to create a scalable Financial Services business to deliver sustainable growth and profitability for the long term. Coming to our Pharma business. Our Pharma business delivered an 18% revenue growth delivering revenues of INR 4,500 crores during the 9 months. The business delivered a 16% EBITDA margin for 9 months and 22% for the quarter 3. Our Q4 performance is likely to partly offset margins in H1. We witnessed some execution-related challenges, related to logistics, rising input prices and availability of raw materials and manpower. The CDMO business revenues grew by 10% during the 9-month period apart from the execution and supply chain-related challenges, deferral of few orders by customers to the last quarter of this year impacted the growth during this quarter. We have over 500 clients, of which we have added 175 new customers since FY '20. This has enabled us to witness a healthy order book for development services business growing 32% year-on-year. Our commercial CMO and generic API, which contributes to nearly 64% of CDMO revenues is sticky in nature. We continue to witness growth in commercial products on patents and Phase III molecules. Business had started integrated offerings since FY '18 and now has a track record of delivering 125 integrated projects. There has been an increase 8x in integrated projects since FY '17 with 40% of the order book now from integrated projects. In addition, we are strategically shifting our CDMO business model towards our top clients in developed markets with focus on niche capabilities this gets reflected from the fact that 75% of our revenues are coming from regulated markets. Revenues from the top 20 clients have grown at a CAGR of 26% over the last 2 years. Our niche capabilities now contribute 22% of our CDMO revenue. This shift will enable us to improve our CDMO top line and bottom line performance in the medium- to the long-term. I want to talk a bit about investments. During the quarter, we acquired a minority stake of 28% in Yapan Bio, growing our services in the biologics space. To meet the increasing demand, we are carrying out capacity expansion worth $130 million across multiple sites. Our Complex Hospital Generics business, which is the second business in our Pharma grew by 25% during the first 9 months. Revenues during this quarter grew by 23%. We've written the strong sale of Sevoflurane in U.S. with continued growth in the Sevoflurane market share. However, volatility due to COVID remains across significant -- remains across different regions. We maintain U.S. market share Intrathecal portfolio and continue to expand Gablofen presence in Europe. We are witnessing some supply chain-related constraints due to longer lead times, rising input prices and higher logistics costs. We have a strong new product pipeline consisting of 30-plus SKUs at various stages of development and approval. Now coming to the India domestic consumer health care market. This continues to deliver robust performance with 9-month revenues growing by 45%, which is driven by strong growth in key brands. We've launched 41 new products since April 2020, and new products now contribute to 10% of our sales. We also launched Piramal's own direct-to-customer e-commerce website, wellify.in. And we are now able to sell our products across 22 e-commerce platforms which contributes 14% of revenues. We are continuously investing in brand and marketing, reflecting the strong performance of our key brands. We are investing in media and trade spend for future growth, resulting in business operating at breakeven. Overall, in the Pharma, post the Carlyle funding, we have been investing organically and inorganically across all our businesses. Each of our Pharma businesses had a compelling plan for growth. We expect near 20% growth in FY '22 for the overall Pharma business. In the medium- to the long-term, we expect about 15% revenue growth across the businesses, and we expect the EBITDA margin to reach anywhere between 25% to 28% in the next 3 to 5 years' time frame. To conclude, I would say that with the balance sheet strength and the uniqueness of our business model, both the businesses are well positioned to tap organic and inorganic growth opportunities and create long-term value for our shareholders in the years to come. Thank you.

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

Am I audible?

Yes sir.

Yes. Three questions here. Firstly, on your -- the quoting and classification of NPA based on the RBI ircular, are there any loans in Stage 3 which are less than 90 DPD? So basically, what I'm kind of trying to understand is why on 1 slide, you talk about the impact of the RBI circular leading to this increase in GMP? On 2 slides, we also say that Stage 3 is loans which are 90 plus. So that's my first question. Sir, the second question that I had is, I mean, if you could kind of share what is the quantum of exposure to the wholesale account that slipped from Stage 2 to Stage 3, and also, if you can give some qualitative color around that account? And lastly, just trying to get some picture of your disbursement. So will it be fair to say that, I mean, of the disbursements that we are reporting, broadly around INR 390 crores to INR 400 crores will be in your housing and MSME secured and the remaining INR 330 crores to INR 340 crores will be in your Embedded Finance? And sir, lastly, if you could just help me with a few data points. What was the consolidated net worth and the consolidated net debt? And I see that you've not given what is the provisions on the wholesale books right now. That can be all from my side.

All right. Let's start with question 1 and 3, and then Khushruji will talk about question 2, and then we'll come back to number 4, okay? Your first question of how we have shown the RBI November circular. Firstly, we have completely implemented the circular, both in terms of reporting it to RBI as NPA as well as converting the stage to Stage 3, right? So what you see as Stage 3 has -- does have accounts which are not maintained as past due. So if somewhere that I have said something different, that must be a typo, but the amounts are not very large. There's about INR 25 crores of value. We're just sitting in Stage 3, which is not 90-day past due as of the end of the quarter. So the Stage 3 is what is NPA as far as our numbers are concerned. There is no separate NPA reporting from our side. So that's number one. Your third question was a disbursement split between, let's call it, our engine on business versus the engine 2 businesses. You're broadly right, about 23% of -- by value of disbursements in the quarter was an engine 2, which is the Embedded Finance business and about 77% was in engine 1. So that's number -- on question number 3. For question number 2, KhushruJi will jump in there.

So to your question on the wholesale book, the one which moved from Stage 2 to Stage 3, let me give you a qualitative color, the amount was INR 147 crores. It was a packaging company. And the reason we moved it to Stage 3 is because it was a part of our resolution of a packaging company, and we needed to restructure it to safeguard the loan. So it is not that it's moved to Stage 3 and the money is going to be lost. In fact, we will recover the entire money. But since we had to do some restructuring, we moved into Stage 3. And mentioning your last question about provisioning of the total provision pool, which we have disclosed, I think about INR 2,600 cores or thereabout, roughly 10% of it sits in retail and about 90% of i its in wholesale. Please remember also that the entire fair value adjustment that we have done as part of the DHFL transaction is not shown as part of provisioning, so that is extra that sits over and above this INR 2,600 crores odd of provisioning that we have shown.

On the net worth and net debt, even though invest been not reported the balance sheet. For now, you may please refer to the September figures, net worth of about INR 34,000 crores and net debt about INR 48,000 crores.

Sure, sir. And if I can squeeze just 1 last question for Jairam. If I look at Slide 18, you're talking about disbursement yield of around 15.4% in used car, 19.5% in MSME unsecured and 14.9% in digital unsecured. How has this tie in with 14.5% disbursement yields on Slide 21?

They're same. What you see on Slide 21 is -- it is basically all sanctioned cases what is being -- sorry, all disburse cases during the course of the quarter, what be the average yield. So you are seeing that 12-odd percent was the weighted average of all the individual businesses that we have done weighted by the disbursement amount. One last point on 14.5%, I hope you saw the allocation there or the Embedded Finance business, 14.5% is not included in the 12.5%. We have kept that out.

Yes. So I mean, the thing is these 3 products that we are doing, right? I mean used car, MSME unsecured, digital unsecured, they all have -- I mean, these value mixes of 14.5%, you've put it on Slide 21.

The last one of that, which is digital unsecured is not included in the yield target of 12%. And the reason we have not included it is that it's very short tenure. The tenure there are like 3 months or thereabout. So it doesn't add much to the overall value. So if you see the -- on the product slide that we look at on Slide 18, the piece that is the very large row. The on that has digital unsecured, that one, we have not included at all in Slide 21.

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

Sir, just on the pharma side and particularly on the CDMO side, while the COVID wave would have led to some deferment in terms of the patient flow. And so I just would like to have your insights in terms of the offtake by the innovators in the scenario? Is it improving? Or is it still yet to show some signs of improvement? That is on the CDMO piece. And likewise, with the COVID cases reducing, are you seeing better traction on the Complex Hospital Generics side?

Okay. So as far as the CDMO business is concerned, the COVID has not actually impacted demand. In fact, demand for our CDMO services continues to remain high. And excluding the generic KPIs in all other spheres, we've seen a good and consistent increase in demand. So that has not -- COVID has not specifically there an impact as far as the demand is concerned. The challenge that we've had is on the execution side, as Chairman alluded to, whether it's in terms of availability of raw materials or availability of people, all the additional costs or nonavailability of carriers for logistics and distribution, that's impacted the CDMO business. As far as Hospital Generics business is concerned, we did see improvement in the U.S. market. But in the ex-U.S. market, the condition has been volatile. In fact, depending upon the country that we speak about and the wave that is there, the demand has been very volatile. And of course, the subsequent waves also, we've seen a situation to be very volatile in different markets, whether it's Europe or whether it is the other ROW markets. So U.S. market is largely on track, but ex U.S. markets, the situation is still very fluid.

In addition what is important to note is that the order book remains quite healthy for us. And I think there is a 30% increase in the order book. If you look at the new customer addition, the number that we reported, I think that also shows that there's a significant set of new customers that have got added in last 1 year. I think that will translate into new -- I mean a better performance of the business as we continue to go forward once these logistics challenges get redeemed post the COVID impact also.

Sure. Sure. And secondly, on this, on the biologics-related CDMO, other than -- I mean, other than the investment into Yapan Bio, if you could just give further color in terms of how do we -- how are we building this capability either in the form of CapEx or any further acquisitions on the biologic CDMO side?

So the acquisition or the strategic investment that we have done in Yapan with the minority stake is our first foray to biologics. So far, we have not done anything concrete in terms of doing any acquisition or investment. So this is the first foray. And the reason for testing it out is that with minimal capital outflow, we will be able to get access to technical talent. This will help us develop some synergies with our existing sites whether it's at Lexington or whether it is at Grangemouth, we will be able to utilize the Yapan's capabilities there. So it's just a beginning product. It's a foray, and we will still see how this entire thing pans out for us to be able to take further decisions with respect to Yapan. Also, it adds an additional capability at this point in time because this could be complementary for our CDMO business where this capability can be offered to our existing customers. So that's how we have begun this space. And we'll, of course, be monetizing how we perform before we take further decisions on further investments in the space.

Got you. And just lastly, on the overall guidance of 20% growth for FY '22, which implies that Q4 is expected to be much stronger. I mean in any case, 1Q is a stronger quarter. But it's going to be -- and year-on-year growth also looks quite interesting on the 4Q level, kind of like INR 2,400 crores kind of a top line compared to, say, the 2 quarters where we did INR 1,500 crores, INR 1,600 crores. Is that the right understanding?

So first, just to clarify, it will be quality been 20%, not necessarily 20%. And yes, it will be a big quarter, especially in the CDMO business. We do have a lot of deliveries lined up. And of course, this is subject to the overall situation across the world in terms of how the COVID pans out. But yes, it is going to be a big quarter for us. And if execution and delivery, all of them happen consistently, then you will see a significant top line.

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

Yes. So firstly, in terms of the performance of the DHFL pool, if you can highlight in terms of the recoveries rundown, which is happening in that. I agree you would primarily look at the retail as the overall pie rather than splitting it between the DHFL and the PEL early business. But still, if you can help to get some sense, both on the retail as well as wholesale how is the collection efficiency out there?

So, Kunal, we are going to resist talking separately about DHFL and PCHFL or PEL organization. So you were unlikely to see us give separate disclosures on these 2 books. That said, there is a more sort of sister version of your question, which I will attempt to answer which is, a, there is some sort of distress book that you -- where you took on your balance sheet or show up -- or we purchased, but it is not showing up on the balance sheet. From the distress book, were you guys are able to recover anything during the course of the quarter. If I interpret your question, roughly, I'd say the answer is yes, we were able to do a little bit on both sides of the business. The numbers are -- the numbers at this stage, small, let's call it, very low feed it. But I wouldn't want to go into a lot more details on that one. On your -- if I interpret your question, I'd say how is overall collection efficiency for the full sort of combined retail business being in the quarter, it has been extremely good. It has been in a very high 90s. So depending on the month, it's been between 97% and 99%. So very high collection efficiency otherwise on balance sheet.

Sure. And overall, in terms of ROA, if I have to broadly look at between the wholesale and retail now. So is retail -- is it like now we have gone into breakeven and out of this 2.5%, 2.6% ROA, which we report for the Financial Services, if you can help in terms of how much it's still flowing in from the wholesale and where do we see the normalized levels, okay, once we see the scale up on the retail side, no doubt lot of investments have been done. So ROAs would be very low or, in fact, negative as well. So just broadly, if you can start sharing that number, so it will be better for us to track in terms of the entire scale up even on profitability side.

Yes, Kunal. That's a good point. We are considering doing segmental profitability report, but we don't, at this point of time, as we know, do segmental profitability reporting. We are considering that. So just watch that space in the quarters to come. You had a sort of more pointed version of a question, which I'm able to answer which is that given the movement and given the addition of DHFL, has retail gotten to a point where it is breakeven, the answer is yes.

So this quarter, there would be a profit in retail as well?

Yes.

Okay. Got that. And lastly, in terms of the scale-up, so 3,0000-odd employees are retained, plus we have added 2,000, so that takes almost 5,000 on the overall branch network, which is there. Plus I think we are looking to add almost 100-odd branches. So just want to get the sense maybe is the intensity so high even at the branch level wherein if I have to look at it, maybe this would be largely the field staff and the ground level staff of 5,000 for almost 300- or 400-odd branches. So that's how it seems to be at this point in time. So is it like some kind of an attrition which we are still building in, and that's why 2,000-odd people we would have further added on to it? Or this is for altogether the newer products which we are adding?

I think there's a third reason which is the most important reason, Kunal. When we took over DHFL, the core employee base for the DHFL organization has already fallen almost 50%, 55% from its peak. Not that necessarily, you need to go anywhere near the peak of the staff in there. But I want just to give sense that a lot of attrition has happened on the DHFL side before the merger. So a lot of the merger is just catching up on the lost people in the pre merger era to make sure that the branches are all functional, that they have a basic level of functional staff. So a lot of it is that. An important distinction I'd like to make is that all the employees that we spoke about are not on our roll. So -- on the roll parent company. We are a separate manpower entity in the company called Piramal Sales and Service Limited. And about 60% of the staff actually is just from that entity. So a core employee base, the on-roll employee base is about 40% of the number that you mentioned. The other 60% is in this manpower entity which is appeared for, that you rightly mentioned, where you expect to see a much higher rate of attrition.

Okay. No, I was just looking at 300 branches, 3,000 already retained. So maybe 10 per branch is already there, and we are still adding on. So just wanted to get that -- yes.

But yes, you're right, if that gets too large. For these 300 branches, we should by and large be done from a staffing standpoint, even including the new product. However, of course, we will continue to increase our branch network as we have mentioned in the past. We expect to add 100 branches in the next months. We will start to addition -- start seeing some in Q4.

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

Just trying to understand the EBITDA margin seasonality. So last time, quarter 2, there was, again, some delay in booking and all, and said it's pushed to H2. And we are flat Q-on-Q. Margins were 12.5% last quarter and this moved up significantly to 22%. So I mean, what is the change here in terms of margin? I mean the delta I see is not much in the -- I mean there is actually the revenue decline. But what is the higher-margin business here? My understanding was CDMO is and Complex Generic Hospital (sic) [ Complex Hospital Generics ] business, the highest-margin business, and these 2 are flat here. So can you explain the seasonality of the margins, please?

So it's basically the mix of the projects which have got booked in the first half versus what is getting booked. If you have been part of the early investor call, you may recall that we had mentioned that we had an adverse product mix in the first half where projects, which have relatively lower margins were the ones which got invoiced, and the ones which have relatively higher margins which are going to get invoiced in H2. And that's what is playing out which is resulting in the overall improvement in gross margin and therefore, the EBITDA margin. In fact, we will see a similar trend playing out in quarter 4 as well where you will see a significant part of the margin improvement happening with more high-margin projects getting built during the period.

So this seasonality is here to stay? Or we are in a process of having a more, what we call, smoother EBITDA margin across your quarters?

So if you have looked at us, the trend for the last few years, it's true that we've had a skew more in terms of higher sales in H2 and -- compared to H1. While we are definitely trying to make this a more even kind of sales and try to improve the overall skew, it's obviously going to take time. This year, because of various COVID-related issues and the delays that happened in execution front, it got even though a bit more skewed than it has historically been. But yes, our attempt is definitely try and improve this. But remember, a lot of this also depends upon customers because the kind of orders that we get and the kind of project deliveries and customer commitments and time lines all determine how this skew eventually pans out. But yes, it's a valid point and we're looking at how we can improve it.

Perfect. And obviously, customers drive business. My other question was also the understanding, like you mentioned CDMO business which has been delayed -- some of the orders being delayed from Q2 and now Q3. So there is a lot of visibility given that 40 days of the quarter already done that the business will trickle down to Q4, and that visibility is with high-margin order book closure. Is that correct understanding?

So as far as order book is concerned, there is clear visibility of what needs to be delivered. The challenge is primarily on execution. In fact, in the month of January when the COVID wave did impact several sites, especially our overseas sites, we did have a lot of absenteeism of people and, therefore, lost some production days. So it's very important for us to ensure that the execution happens properly in the months of February and March to be able to meet the targets. So to answer your question, from an order book standpoint, there is visibility. What we need now is impeccable execution.

Yes. So closure is also -- I mean, this is subject to execution during the quarter?

Correct.

Okay. And one question for Mr. Piramal on thought process of bringing some business to India. I mean, obviously, being near to the client has its own advantages. But is there a thought process of bringing in large-scale business to India and have lower cost of operations?

So it is a seamless thing that we do build investment. We are doing significant investment actually in the current -- in the next year as far as the Digwal facility is concerned, which anyway in terms of share numbers is the largest manufacturing facility that we have in -- across the world. So we are increasing capacity and the customers -- depending on what the customers want, but we always are conscious of margins.

The next question is from the line of Aditya Jain from Citi Group.

Just wanted to understand the yield a little bit. So DHFL yield you mentioned were 11%, cost of borrowing 7%, so a spread of 4%. If I understand the cost of borrowing, we'd finance it for that low 6 3/4% coupon bonds, the yield of 11%. So the denominator here -- so I assume the gross yield on the original loan was probably lower because of a housing kind nature. So this yield is based on a lower denominator based on write-down of the book. Is that the right understanding?

No, no, no. It's on the gross book. It's on the gross book, Aditya.

It's on the gross book. Okay. So what flows into our financials then should be a much higher yield . Is that right?

What flows in the financials should be a higher yield, yes.

Okay. Got it. And then when we get these kind of recoveries, so will the small amount of recoveries there in the quarter probably will become larger with time. So they are a part of the Financial Services yield on loans, is it or...

That's right. As for India norms, as you know, these will show up as part of the...

Part of the revenues, but not part of the yield.

Correct. So in the revenues, but not in the yields?

Yes.

These are essentially loans which are not on book at all. So I guess it makes sense not to have them in the yield for their sort of noninterest income. Understood. And then just lastly, in terms of monthly disbursements, so clearly, I mean, the hiring and the tranche expansion shows plans to really scale things up. Just broadly, what level of monthly disbursements would you target for the new products and for the housing or even collectively, if not broken embedded type of product?

Sure. So Aditya, we'll reiterate what we said in the -- on the previous call that our pre DHFL retail disbursements were about INR 500 crores a quarter. And we had said last quarter that in the first 12 to 15 months of acquisition, we expect that disbursement number to grow 5 to 7x. And that continues to stand, given what we have seen in the first 3 months.

Sorry, 5 to 7x in what time period?

We've said, as you know, -- so I assume Q3 of the coming year.

The next question is from the line of Abhishek Sharma from Jefferies.

Am I audible?

Yes, sir.

All right. Yes. My question is on the Pharma side, just trying to get some better color on the CDMO business here. Your investor presentation says that there was a deferral of few orders to Q4, whereas the commentary, say, is a more about supply chain constraints. So just wanted to understand what is the related weightage of each of these in the CDMO or flat net this quarter? And also in terms of what kind of discretion do clients have in terms of deferring their orders to future quarters? And do you think that can sort of play some disturbance with your demand planning in the future?

Okay. So in terms of the overall deferral of orders which have happened, that's in the CDMO side. Primary reason for not being able to achieve plan has been challenges with respect to execution at our overseas facilities And these are the orders which are going to get pushed. So in fact, most of the shortfall that we've had is apparently attributable to execution in various forms. So whether it could be because of nonavailability of people or it could be because of nonavailability of material or the customers themselves asking for a change of schedule and therefore, are starting to push out the orders to quarter 4. As you heard, in the CDMO space, most of these products are customized products made as per customer's requirement. So obviously, the customers source from us, and they obviously cannot go elsewhere. As far as CDMO is concerned, all of these -- what we have done is to sensitize the customers with respect to what the reasons are and the customers are fully aware of the various reasons in the current scenario, which is an extraordinary scenario where if you look at not just us, but in general, there have been challenges with respect to logistics and distribution and there have been challenges with respect to availability of manpower, which has been a global problem. And what we do is timely sensitization of the customers so that they are fully aware of when these orders will be executed and then they can expect to get their products.

So the primary reason was on our side of execution, not the customer deferral per se.

It's a mix of both. There have been cases of customer deferrals as well, but it's more predominant towards execution at our end.

And given the fact that you said that January, there were still some problems, you are now back to normalcy as far as our execution is concerned?

Not fully, but to a great extent, yes, most of the sites now with the COVID wave receding seemed to have people coming back on track. So yes, fingers crossed for February and March should be able to meet the planned numbers.

I mean what is encouraging to also see is that at the beginning of the year, we have guided you that we will deliver 20% revenue growth for Pharma as a whole. And I think we are continuing to maintain that kind of similar guidance even when we are standing in Q4 right now, right? So I think that itself should be a comforting despite the fact that the year had its own challenges in the form of COVID and logistics issues.

Specifically on CDMO, given the fact that we are already halfway through this quarter, do you think you'll be able to meet the CDMO -- the target that you have?

You need to look at the Pharma revenue as a whole and not get into specific guidance on individual businesses. I think we intend to deliver 20% revenue growth or nearly 20% revenue growth for Pharma as a whole. And I think we're sticking to that kind of target as we're talking right now.

The next question is from the line of Bhaskar Basu from Jefferies.

Yes. I had a -- 2 questions. Firstly, just wanted to get some understanding of the securitized pool on which you get a fee income, if you can kind of explain this, what does this pertain to? That's number one. Secondly, the total cost on a consolidated basis has actually remained flat, even though you've consolidated DHFL during this quarter. So just wanted to understand what is -- where does -- I mean, despite the fact that you've added headcount, there hasn't been much cost increase at a consolidated even. Obviously, we do not have color on the lending side specifically. So if you can explain that disconnect. And finally, on the provision coverage, so while NPLs have gone up? You kind of chose to reverse provision and bring down the coverage, what kind of coverage levels are you comfortable with? And as you kind of ramp up your retail business, what kind of credit cost do you expect from the lending side as such?

All right. There's a lot of questions in there. We'll try unpacking some of them. On the fourth question, which is the off balance sheet, the securitized assets at a very simplistic level. During the time when DHFL was facing a liquidity issue. They sold a lot of their book to other investors, mostly banks. So think of large public sector banks essentially as the buyer of the securitized, too. So those banks pull the most of the economic interest in those assets. However, those assets continue to get managed by the DHFL team, now PEL team. That book is about INR 20,000 crores, which is not shown on our balance sheet, obviously. But on that book, we earned a fee of 1.6% annualized give or take, roughly thereabout and that's what we have disclosed. We didn't talk about it in the previous quarter. We thought it might be useful for us to actually point that out this quarter. So we have specifically actually mentioned both the amounts as well as the fee we make on that. The cost base of this is relatively limited, and it's incremental to what we have in the core retail business. We are not particularly -- so that's not a particularly large cost line item. That is number one. Your -- you had another point on the cost line, which let me take as well. And you had noted and commented appropriately that the costs have increased, the OpEx has increased a little bit at the overall PEL level, but not by a whole lot. And you had wondered why, and your point is absolutely right. There are a bunch of moving pieces here. So I'm not trying to unpack everything. I'll just say a couple of things, and then we can talk more offline. One is, of course, that this is at the overall PEL level, so individual entities have had slightly different deltas. The second thing that I'd say is that we chose also to move some of the manpower to the separate manpower company, which changes the structure a little bit in terms of what -- how some of those cost line items work out. And the final point that I'd also give for your reference is in the last published results of the DHFL entity, you will notice that the total cost base was very small to begin with, right? The total cost base of DHFL in the first quarter of the financial year was only INR 90 crores for the quarter, and only about INR 55-odd crores for manpower. So the cost base wasn't very large to begin with. So consolidation wasn't expected to materially move the overall OpEx line item. So that's as far as that piece is concerned. Then you had a question on provisions. What is the level of provisions that we are comfortable with? Well, see, currently, we have -- from a gross NPA perspective, we have a provision of just about 50% or thereabout on an overall basis, I think, 48%. Now in a book which is entirely secured and have sort of residential housing assets underneath it we think 50% is by and large okay, especially considering that on top of it, we have got other buffer provisions as well, which make for an overall provisioning of 4% of AUM, which we think is a fairly strong situation. As you've seen in the past 2 quarters, we have resisted releasing any provisions, right? Even though the overall real estate market was improving for the last 2 quarters, we didn't release anything. And we got, if you might recall the first question the last quarter, essentially saying that, hey, the market environment is increasing, do you still need to hold on to all these provisions. This quarter, we have chosen to release just a little, but don't read too much into it. This is not a big trend or anything. This is a quarter we think based on individual assets.

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

A couple of questions. If you look at Slide 32, just trying to get a sense of the difference between AUMs and loan book. What part of it is AIFs and what part of this is investments? I think the number was around INR 5,000-odd crores this quarter.

Can you just repeat your question?

Yes. So I am looking at Slide 32. You have AUMs of around INR 65,000-odd and loan book around INR 60,000. The difference between the 2 essentially is AIF and investments. if you could give some breakup between how much was AIF and how much investments?

I think the major amount is AIFs, except for a large investment, which we did in -- when we took over the Andheri East land from Omkar, if you recollect almost a few months ago or a few quarters ago, which is INR 1,300-odd crores that is everything you can assume that they are in here.

Okay. So all of this pertains essentially to the lending or the wholesale lending business, it does not include any liquid investments at all? I just want to know that.

Yes, yes. Yes, absolutely.

Sure. The other thing is if I look at Slide 33, and you have yields and margins. Just wondering where does this 1.6% spread get reflected? Is that being reflected in the yields or margins or which line item should I see this?

Yes. So the 1.6% is not part of the yield. It's -- I think there's a footnote here which talks about that, on this page if I'm not mistaken. Yes, footnote #3 on the slide, talks about that. So the fee income from securitized assets has been excluded from the yield calculation that we've shown on this slide.

So is it reflected in the ROA, I mean, kind of connected backwards?

Yes, yes.

ROAs are reflected within.

Sure. Just on the cost of funds finally, this is 9.1% cost, if you could sort of split between the 6.75% DHFL NCDs. And what would be the cost if I exclude the 6.75% DHFL NCDs?

Yes. This is not something we want to go in. I mentioned this in the early part of the call. We don't want to get into practice of trying to separate out the DHFL transactions from the rest of the book. You -- I mean, if you're really desperate to calculate it, I'm sure you can calculate it. You know what the NCD amount is and what the rates are. And you can go back and calculate it. We do want intend to separate that. I will go back to what we have been saying before the transaction happened, right, which is that we believe one of the major advantages of the transaction is that it will lower our cost of borrowing. And a lower cost of borrowing for us, purely mathematically because the transaction has got a lower cost of borrowing itself. And so purely mathematically to some extent, you will see cost of borrowing. And part of that there'll be some organic reduction in cost of borrowings as well. What we have seen very clearly demonstrated in this quarter is that the mathematical part of the reduction in cost of borrowing. We will -- the rest of the delta will also come over time. But it is not intent to make some artificial distinction and separately show. I'm sure lots of folks out there, like you will back calculate and figure it out anyway.

Perfect. Just one last one, if you could share the incremental cost of funding for the quarter? Unless you mentioned it...

Around 8.5%.

The next question is from the line of Shalini Vasanta from DSP Mutual Fund.

This is Vivek Ramakrishnan. My question is primarily from Mr. Jairam Sridharan because he's already been there, done that. So when we look at the various NBFC presentations, it's almost always face the same set of things Phygital and participation with fintechs, what do you feel is the secret sauce that is going to propel DHFL forward is one other question that I have. And then just diving down into the housing finance business, you can see that the yields depending on which the company goes all the way or a bank goes all the way is 7% to 15%. You've chosen 11%. Is that your secret? Is there a sweet spot for you in terms of the customer segment that you'll target which clearly gives you the best risk-adjusted returns and also linked to cost to income. And the last question is more on the liability side. One of the keys to the housing finance business is to have low-cost funding, of course, and which is dependent on the ratings. Is there a glide path to ratings that you're working on that there will be increases? And are there a few triggers that we should watch out for that they help us in terms of knowing how the ratings should move?

All right. Thank you, Vivek. Thanks for those questions. Firstly, to your strategic one, right? It started to feel for a little bit a lot of NBFC sort of communication that there are the sort of 2 broad -- different types of businesses that people are trying to do and how do we differentiate. In general, my feeling on this Vivek is that in the retail business, nobody is going to win because they have a better strategy. People are going to win because they have their execution. So I don't think kind of competing strategies head-to-head of any use at all. What we've got to figure out is who is able to execute both the really high touch, get your sort of dirt under your finger nail, go at the ground level customer to customer and do high-touch underwriting for affordable housing and is also able to figure out how to set up a new-gen tech start, how to build the right API library, how to connect in the most seamless way with digital partners, how to create the most scalable back-end loan management systems, et cetera. People who were able to execute on both of those things very well, are the folks that are going to win. Needless to say that our believe that we have put together the right team to be able to do both of that. On the one hand, we have people who have done hands-on digital lending and affordable housing business for 20-plus years who are leading our business on that side. And on the other side, we have a team led by a CTO who has joined us from Amazon, who has put together an engineering team of 200 people that is trying to build our own software out of our center of excellence in Bangalore. We have put together a talent set, which we believe adequately addresses both of the things that we need. And hopefully, that will lead to good execution, but time will tell on whether that execution is good or not. Your second question was on affordable housing or the housing space in general and the path that we have chosen to be in that 11.3%, I think, is our average yield on housing and the fact that we've chosen to be there. I would say that this is -- it's not a -- there is no perfect sweet spot here, Vivek. There are multiple spots and you've got to operate on all of them and you've got to let the market decide what's the most appropriate sort of cross market fit is. Like all sort of people who are evaluating new markets and to use the past terminology, we are constantly looking for the right product market fit. We have currently got 2 major offerings in the housing space. One in mass-affluent space, where we have found that the right product market fit for us is around the 10.5%, 10.75% kind of range. And we've got affordable housing product where we found that we write it at around the 12% range, right? Weighted average, these 2 things are leading us to about 7.25% in terms of yields of housing. We are also considering a product in the even smaller ticket size, a budget space, where yields might be even higher. So these are the spaces, it is their own sort of sweet spot that we will find and we will let the market tell us where the big opportunities are. And based on that, the weighted average will come out. It's not like we are particularly targeting a specific rate around this space.

That answered the question on the asset side. On the liability side, please, in terms of the ratings and the glide path that -- I mean any specific triggers that we should look forward to?

Yes. I mean great ratings only happen, right, you can't chase that. You will hear it when you stop chasing it. So we don't have a great sort of big project, which is trying to get our rating up to a particular level. We are doing all the right things. We have changed the tenure profile of our liability. We have reduced leverage. We have significantly increased granularity on the asset side of the book. We have increased provision levels. Our capital adequacy is upwards of 25%. We are doing all the right things. hopefully, the credit agency will notice and give us a new in the goodness of time, but we are not going to be knocking their doors on.

Extremely well. Just one other question, if I can sneak in. Given the fact that on the liability side, you have loans, which are sub-7% for a long period of time. Essentially, you turn your housing book quite over with that liability profile, right?

Thanks for noticing that. Vivek. Yes, we can.

The next question is from the line of Prateek Poddar from Nippon India Mutual Fund.

Sir, just one small clarification on Slide #38. You talk about 3 products on the oncology side, which will hit $5 billion of sales. These are your sales or the innovators'?

These are the innovators' sales.

And what is your share of business here in this or your share of revenue, if I may ask?

See, we continue to have many customers. These are one of those many customers. So they contribute to a portion of our sales, and we don't give customer-wise sales. So -- but I think what the point we are trying to make here is these are attractive segments and there are sizable customers with whom we can -- we are continuing to do business with, and we can expand our business along with them as the group.

And to clarify, these are your commercial products, right? These are commercial basket of products under CDMO which you are supplying, right?

Correct. And what basically indicates is the potential and the stickiness of revenues in the future. So these product really take off to the potential that is there that ensures a more stabilized our business for the business.

And any time line by which you expect these to hit their peak sales?

It's difficult to say that at this point in time.

And last question on your tax rate. You have deferred tax assets, right? So can you just talk a bit about your tax rates?

So specifically, the tax rate is between 24% to 25% currently.

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

Sir, my first question relates to other comprehensive income. I wish to know what does the changes in fair value of equity instruments in OCI comprises?

It's primarily Shriram City Union, as you are aware that the equity accounted currently. And there has been a 29% increase in the share price of Shriram City Union, if you compare April to December, that's the primary driver for that.

Okay. Sir, the other question is whether some color can be given as to what comprises the share of net profit of associates and joint ventures in the quarterly results of INR 183 crores? What could be the going forward...

Yes. So that's -- sorry?

What could be the going forward view on that?

So that basically comprises of our share of profit in Shriram as well as a joint venture with Allergan. And that is what you see currently in that.

And what could be the view going forward for this head of income?

So Allergan business has been growing. They are #1 in ophthalmology in India, the JV that we have, and profitability margin has been 30%. So we remain optimistic with the business. And I'm sure Shriram business, you would be tracking us in a lot more detail, so you can kind of look at the estimates of the Shriram Group.

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

Sir, on the financial side of the business, our reported ROE is around 9.5% without suffering the inflow of the -- this investment that we in near future we will do. So what sort of medium-term ROE are we looking? And what are the strategies? How do we plan to achieve that medium-term ROE?

We've not offered specific ROE guidance on this, but we have said in the past, and I'll reiterate that the kind of business that we are building is one which has a mix of 2/3 retail, 1/3 wholesale. And within wholesale, about half and half between real estate and non-real estate. This type of business, we believe, can yield somewhere between 2.5% and 3% ROA. Now what that converts to in terms of ROEs, let us see, depending on what the leverage environment in the market is. Currently, we are playing it extremely conservative from a leverage standpoint with our Financial Services business. but you can apply your own leverage assumptions of how much you think a business like that, when executed well, can leverage and that can give you a good view. In current market environment, businesses of that nature are in the mid-teens ROE.

Okay. So I mean, sir, currently, our leverage is 2.5x and once we get the investment, so what kind of a comfortable level within current kind of scenario will be -- we will like to have a leverage?

The only thing we can say is that we are very comfortable with where we are from a leverage standpoint and we'll be comfortable increasing it a little bit. But what is the exact limit to which we can increase it, it depends a lot on the liquidity environment and our expectation on the liquidity side going forward. So it would be inappropriate probably to comment on where we would like to be 2, 3 years from now. Let's see how the market evolves.

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

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

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