Piramal Enterprises: Transitioning to 15% AUM CAGR till FY28 at P/B less than 1 & PE of 5
Recent performance is weak. Stronger performance expected based on guidance till FY28. Outlook for strong PAT generation by FY28 could lead to re-rating in PEL & generate multi-bagger return
1. Financial Services company
piramal.com | NSE : PEL
2. Weak FY23: PPOP up 15% and Revenue up 39% YoY
3. Weak Q1-24: PAT down 58% and Income down 9% YoY
Were it not for the gains made from sale of shares in Shriram, PEL would have made losses in Q1-24.
4. Weak Q2-24: PPOP down 38% & Income down 3% YoY
5. Weak H1-24: PPOP down 50% & total income down 10%
6. Outlook: Stepping back into the growth mode with aim to achieve 3-3.3% ROA by FY28
i. AUM to grow at 15% CAGR till FY28
ii. Outlook for strong PAT generation till FY28
PAT expected to be Rs 4,600 cr in FY28 i.e. ~Rs 1150 cr of PAT per quarter compared to Rs 30 cr of PAT in Q1-24 or the Rs 113 cr of PAT before exceptional gain / (loss) in Q2-24
8. PAT growth of 109% & Revenue growth of 65% in H1-24 at a PE of 18
9. So Wait and Watch
If I hold the stock then what’s the point holding on to PEL
H1-24 performance for PEL has been quite weak, its hard to justify holding on to PEL
The business is undergoing a transformation into a housing focused diversified retail business from a wholesale business.
The clean up in the business is getting over
Completed stressed asset recognition cycle and made sufficient provisions
As you can see, the size of some of these clean-up is getting smaller and smaller every quarter. So we don't think there's anything kind of major that's out there. Minor things might come up every now and then like in all spring cleaning, Abhijit which is like you might realize some other things in some corners, but nothing material.
In the medium term one can hope for an upside on account of
Value unlocking through stake sale in remaining Shriram cos.
Over the long-term one can hope for inorganic growth to add to PEL
Enhance growth through multi-dimensional M&A strategy
Strength of balance sheet to support M&As
10. Or, join the ride
If I am looking to enter PEL then
PEL has delivered PPOP de-growth of 50% & total income down 10% even at a PE of around 5 doesn’t provide a lot of confidence to enter the stock.
PEL has a strong road-map till FY28. If PEL delivers on the roadmap to FY28, there is an opportunity for significant upside in the stock .
The management believes that PEL is under-valued and had initiated a buy-back at a price of Rs 1250 in Q2-24 which was at significant premium to the market price. The management did not participate in the buy-back
The price of Rs. 1,250 per share is a premium of 25% over the last closing price of the stock market intimation date. Considering this buyback and dividend paid over the last 12 months, the company has returned a total of Rs. 3,278 crores which is 16% of the company’s 3- month average market capitalization.
The promoters and the promoter group not participating in the buyback signifies the big potential that we look at and the value that is in the shares in the long term in the future and the promoters are fully committed to ensure that your company perform in the future as well.
With a market cap Rs 21,000+ cr against a net worth of Rs 28,710 cr as of Q2-24 end implies that PEL is available a price to book of less than 1 which makes the valuations quite attractive
We remain strongly capitalized with a net worth of INR28,710 crores on a consolidated basis.
The is a potential for consolidated PAT to to reach ~Rs 4,600 cr by FY28 could create the opportunity for the stock to multiply
AUM to grow 2X by FY28
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Disclaimer
It is an analysis of the company data and not a stock recommendation
Perspectives may change based on evolving understanding of the company.
Focus is on identifying potential stock ideas for long-term market-beating returns.
Content does not constitute explicit stock recommendations.
Investors should conduct thorough stock research and seek professional advice.
Information is for educational purposes and not financial advice or a call to action