Piramal Enterprises Shares Gain On Jefferies’ ‘Buy’, Potential Rerating Triggers
Shares of Piramal Enterprises Ltd. jumped the most in a week after Jefferies initiated coverage on the stock with a ‘buy’.
The completion of Dewan Housing Finance Corp.’s acquisition would help Piramal rebalance its portfolio and offer a strong platform for growth in retail housing, the research house said in a Dec. 6 report. A scale-up of retail book and recoveries from DHFL’s de-recognised portfolio should drive a 14% annualised growth in financial business profits over FY22-24, it said.
A proposed demerger of pharma and financial businesses could simplify the corporate structure, sharpen the management's focus, improve transparency around financials for the two verticals and drive rerating as the conglomerate discount falls, the report said.
“A potential rating upgrade in the medium term can reduce funding cost and enhance ability to derisk the book without compromising returns.”
Shares of Piramal Enterprises rose as much as 3% in intraday trade before closing 2.59% higher. Trading volume was 1.7 times the 30-day average for this time of the day.
Jefferies has set a price target of Rs 3,050 apiece for the stock, an implied upside of 21%.
All the seven analysts tracking Piramal Enterprises suggest a ‘buy’, according to Bloomberg data. The 12-month consensus price target implies an upside of 21%.
Other Highlights From Report
DHFL acquisition has raised Piramal Enterprises’ retail loan mix to 36% from 12%.
Expects retail disbursal to ramp up from first quarter of FY23.
The company’s asset quality issues peaking out with stage-3 loans (overdue for 90 days or more) stable at 4.6% (pre-merger) for the past three quarters.
Pick-up in builder sales likely to catalyse growth.
Sees return on assets of 2.2-2.3% over FY23-24E.
The contract development and manufacturing segment to drive growth in pharma business.
Complex hospital generics continue on the path to recovery post-pandemic. India consumer healthcare business looks to attain scale of Rs 1,000-crore revenue per annum before striving to turn profitable.
A combination of healthy growth, rebalancing of portfolio and demerger to aid re-rating.
Slower-than-expected ramp-up in retail loans.
Lower-than-expected recoveries from DHFL’s de-recognised pool.
Higher non-performing loans, slippages in wholesale book.
Slowdown in contract manufacturing and development opportunities.
Adverse impact of a Covid-19 third wave.