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Piramal Enterprises Looks To Boost Share Of Consumer and Retail Lending

Ajay Piramal is looking to de-risk his financial services business.

Piramal Group chairman Ajay Piramal. Piramal Enterprises had earlier this month sold its entire 10 percent stake in Shriram Transport Finance for Rs 2,300 crore. (Photographer: Dhiraj Singh/Bloomberg)
Piramal Group chairman Ajay Piramal. Piramal Enterprises had earlier this month sold its entire 10 percent stake in Shriram Transport Finance for Rs 2,300 crore. (Photographer: Dhiraj Singh/Bloomberg)

Piramal Enterprises Ltd. said it’s looking to boost the share of its consumer and retail loans while cutting back on lending to developers as non-bank lenders and real estate sector find it tough to raise capital.

The group will, however, use part of its latest fund-raise from Canadian pension fund CDPQ to help struggling real estate borrowers complete projects, according to billionaire Ajay Piramal, chairman of the conglomerate that bears his name. It will provide funding though instruments like senior secured debt for last-mile funding, he said.

The company’s board approved raising Rs 5,400 crore through rights issue and preferential allotment of cumulative convertible debentures to CDPQ, an existing investor. The proceeds of the allotment will come in by December, said Piramal.

The debentures have a conversion price of Rs 1,510 apiece and are expected to be converted into equity at the end of 18 months. The rights issue underwritten by the promoters will be completed by February.

Piramal Enterprises raised capital at a time funding has dried up for non-bank lenders and developers after the surprise defaults of IL&FS group a year ago.

The pace of turbulence for non-bank financial companies came as a surprise, said Piramal. “The pace has been more rapid that one would have thought. I think if the (finance) ministry, other players, the regulators were to look at and if we take some more steps, I think we can still arrest it.”

Developers funded by the group have not seen deterioration in asset, though they face liquidity crunch to some extent, according to Piramal. Many of its developer-borrowers, he said, have been able to generate sales and reinvest in the business. “If you look at our own books we have been able to collect Rs 19,000 crore in payment—principal, interest in addition to pre-payments and some of them have been refinanced.”

The non-bank lender wants to reduce residential real estate exposure which stood at 48 percent as of September. And it now wants to boost contribution of its retail book from 13 percent.

“We want to now make our book much more diversified. So one of the big areas that we would invest in is to look at how we can get into consumer and retail lending more,” Piramal said.

The fund infusion will bring in more capital to look at growth opportunity. “Our debt-equity will come down to about 1.7 times and we will be very well capitalised and take care of all opportunities of growth,” said Piramal. Besides lending, Piramal Enterprises will look at growth opportunities in the pharma.

Cutting Mutual Fund Exposure

Piramal Enterprises is also consciously reducing its market borrowings from mutual funds that had cut down investments in commercial pale amid concerns around corporate debt.

“Our mutual fund exposure at the end of September 2018 was Rs 18,000 crore. By the end of November (this year), our exposure to mutual funds as far as commercial papers are concerned will go to nil. It’s definite because I find that’s short-term money,” he said. “It’s like a drug, you get addicted with a low cost and then it has its consequences.”