Piramal Enterprises To Focus On Balance Sheet Consolidation In Virus-Marred FY21

“So, in an environment which is uncertain, I think we need to focus on balance sheet and to see that it is protected,” Piramal told BloombergQuint in an interview after the company declared its March quarter results. “It is like you have pushed back growth by a year, but I think it will come back."

India imposed the world’s strictest coronavirus lockdown on March 24, shuttering all but essential services in the country. The restrictions have been extended twice since then, with some easing aimed at reviving the economy. A few states have asked Prime Minister Narendra Modi to give them flexibility to plan a graded exit from the lockdown.

Financial Services Business

Piramal Enterprises' financial services arm, which accounts for more than 50 percent of total capital allocation, saw its loan book shrink by 10 percent in 2019-20.

The company began consolidating its book and diversifying risk from its consumer housing finance business in the past year. Retail loans comprised a little more than a tenth of its Rs 50,000-crore loan book while the rest was in the form of wholesale loans to developers and corporates. As on March 31, provisions against bad loans accounted for 5.8 percent of the loan book.

“I think what we have provided today is adequate under a very stressed scenario,” said Piramal. “We have taken lot more stress in the system than what the government has been talking about or generally experts have been talking about. Keeping that in mind also, we have enough capital in the financial services business.”

In FY20, Piramal Enterprises allocated Rs 15,500 crore equity to its financial services arm. That includes an additional Rs 2,000 crore that was infused to maintain the equity level after the company made provisions worth Rs 1,900 crore in the quarter ended March 31.

Debt Servicing

Piramal said the conglomerate pared its debt by Rs 17,500 crore in FY20. This was done using a combination of preferential issue, rights issue, sale of the pharma division and part stake sale in Shriram Group companies.

Theese moves raised Rs 14,500 crore in equity for the company.

“Today if you look at our balance sheet, we have a very healthy debt-equity ratio of 1.2x for the overall company,” Piramal said. “We have equity of Rs 30,500 crore. I don’t think there are many NBFCs that would have this equity,” he said. “We brought in Rs 14,500 crore in equity last year. Even in the financial services book, we have a debt-equity ratio of 2.6x.”

Moratorium & Loan Repayments

The company has provided moratorium to 85-90 percent of its wholesale book and 25 percent of its retail lenders, and has received moratorium on a small amount from banks. “Moratoriums that we have given to customers ends in May,” he said. “If it extends, we will have to see what happens.”

Piramal Enterprises has to repay nearly Rs 10,000 crore in bank loans in the next six months and is in a “very comfortable" position to do so, the chairman said.

“As far as the liquidity situation is concerned, we had as on April 1 an opening balance of Rs 8,000 crore in cash and undrawn bank facility. During April itself, we got Rs 4,000 crore of bank loans,” Piramal said. “That said, the net outflow that we need to pay in the first six months of the year should be easily manageable.”

The company is also looking to sell 20 percent stake in its pharma business to a strategic investor and exit Shriram Group in the current financial year, he said.

On Tuesday, Piramal Enterprises’ shares fell 2.69 percent to Rs 906.50 apiece on the National Stock Exchange while the benchmark Nifty 50 shed 0.46 percent to end the day at 9,196.55 points.