Ladies and gentlemen, good day and welcome to Piramal Enterprises Limited Q4 and FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. 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.
Thank you. Good evening, everyone. Hope you are safe and in best of your health. I am pleased to welcome you all to this conference call to discuss Q4 and full year FY 2022 results. Our results materials have been uploaded on our website, and you might 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, Ms. Nandini Piramal, Executive Director of Piramal Enterprises and Chairperson, Piramal Pharma, Mr. Khushru Jijina, Executive Director of Financial Services, Piramal Enterprises, Mr. Jairam Sridharan, Managing Director of 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 I would request him to share his initial thoughts. Thank you.
Good day. I have great pleasure in welcoming you to our investor call today. The year FY 2022 was transformational for our company, marked by the achievement of two major milestones. Firstly, the acquisition and integration of DHFL within our financial services business. This has been a value-accretive acquisition and also has enabled us to achieve significant growth. It has materially given us a further impetus to our business ambitions and targets. Second, in the year, we made significant progress on the Pharma demerger and simplification of the corporate structure. Our demerger was approved by the board in October 2021. We have now already received consent from RBI, SEBI stock exchanges, and clearances from most of our creditors. NCLT has now allowed us to convene our shareholders and creditors' meetings and seek their approval too.
We are on track, and the demerger is expected to get completed by the third quarter FY 2023, of course, subject to various required approvals. Quarter four and the FY 2022 performance, I would like to now talk about. FY 2022 saw several headwinds that brought a degree of uncertainty to the world economy and inflation risks to our Indian economy. Despite such a volatile environment, the company has delivered a resilient performance during the year. During the year, we had revenues of INR 13,993 crore and a net profit of INR 1,999 crore during the year. For the fourth quarter of FY 2022, our performance had a revenue growth of 22% year-on-year to reach INR 4,163 crore, driven by a strong growth in financial services, post the DHFL acquisition and a healthy growth in pharma revenues.
Our reported net profit is INR 151 crore in this quarter, with a net loss of INR 321 crore for the financial services business. The reported net profit during the year was primarily impacted due to our decision to make additional provision against stage two assets worth INR 822 crore and an interest reversal of INR 215 crore, totaling INR 1,037 crore. We reevaluated our wholesale portfolio during the quarter to detect any lasting impacts on our clients of the pandemic or recent stresses in the economy. Based on this assessment, we moved some of our non-real estate exposures to stage two. These were high-yield structured mezzanine loans in the non-real estate portfolio done under the HoIdCo structure in FY 2018, 2019. We have discontinued doing such kinds of deals.
Over the last few years, we have made a significant progress in building a resilient business model that can tide over multi-year business cycles. You might recall that we had categorized our transformation journey in financial services in three phases. Phase I is consolidation. Prior to the DHFL acquisition, we had completed phase I of our transformation, where we made the business more resilient by one, improving capital adequacy. Two, reducing the loan book concentration. Three, creating provisions in response to COVID-19. Four, reducing leverage. Five, eliminating short-term debt. Six, strengthening our liability side. Phase II of our journey has been transition plus quantum growth. We have achieved a major portfolio transition as well as significant growth through the acquisition of DHFL that would have otherwise taken several years to accomplish through the organic route.
Our AUM grew 33% year-on-year to INR 65,185 crores, with the retail AUM growing by 4x year-on-year to INR 21,552 crores. This has also achieved diversification, and the share of retail loans has increased to 36% from 12% as of March 2021. We have significantly increased our presence with 1 million life-to-date customers and 309 branches across 24 states and union territories. We've also had granularity, creating one of the leading housing finance companies in India focused on affordable housing with an average ticket size of INR 13 lakhs . Our off-sheet, off-balance sheet securitized pool of INR 18,747 crores generates a fee of 1.5% per annum. All this was achieved without any additional equity infusion into our business.
The DHFL integration has made significant progress in the last six months, and we are continuing to focus on capability building. We retained 3,000 employees of DHFL, rolled out 3,000+ job offers post the DHFL acquisition. We have now reactivated nearly all erstwhile DHFL branches. 99% of our branches are login active, 98% are sanction active, and 97% are disbursement active as of March 2022. With the DHFL acquisition and integration now complete, we are now embarking on phase III of our transformation journey and have put in place the appropriate levers for a superior performance in the future. I would like to now share with you some of our aspirations for the next five years up to the financial year 2027.
Over the next five years, we aspire to achieve a retail-wholesale mix of 2/3 retail and 1/3 wholesale. The AUM, we want to double the AUM of the financial services business from FY 2022. We will have significant retail growth, with retail disbursements growing at 40%-50% on a CAGR basis, for a five-year CAGR basis. In terms of leverage, we want to further optimize our capital utilization with our net debt-to-equity reaching to anywhere between 3.5x-4.5 x. In retail lending, in the last quarter of FY 2022, our disbursements grew 100% quarter-on-quarter to INR 1,480 crore as a result of activation of multiple branches and customer acquisition.
We are now on track to achieve disbursements of INR 2,500-INR 3,500 crores in the third quarter of FY 2023, which is almost 5x-7x of the pre-merger level. Our disbursement yields continued to improve to be 12.5% in the last quarter versus 11.3% in the first quarter of FY 2022, driven by a shift in product mix of disbursements. Coming to our distribution network. During the quarter, we have now added 14 branches to our existing network while simultaneously closed down six high-cost branches, thereby increasing our branch network to 309. We are now working towards converting all DHFL branches into multi-product branches. We are looking to expand our branch network further by adding 100 branches in FY 2023.
Over the next five years, we target to have presence across 1,000 locations with over 500-600 branches. Technology initiatives I would like to talk to you about. We have built an in-house software development capability, which are being utilized to build all our digital assets. We have set up a digital center of excellence in Bengaluru. We have hired 200 people in the technology and analytics. Also, we have launched mobile apps which had over 125,000 downloads so far. As part of our technology strategy, we are building a world-class tech and artificial intelligence-led lending business, which is cloud native and hence scalable. We are investing for future growth. We should be able to significantly grow our retail business every year for the next few years as we continue to focus on capability building and investing for the future.
We have assembled a best-in-class leadership team. We've built a technology-led retail lending business, which should help us in improving cost efficiency as well as better manage asset quality. We are expanding our product suite by launching new differentiated high-yielding products. We are getting into partnerships and equity investments in leading fintech players such as a 10% equity stake in EarlySalary, which have the necessary lending building blocks to reach significant scale. Now coming to wholesale lending. We see a pickup in the real estate sector. As you know, the RE sector goes through up cycles and down cycles, which typically last for six to eight years. Residential real estate inventory levels are at an eight-year low, and affordability has also improved. Moreover, there has been a significant consolidation in the real estate sector over the last few years.
Our performance of our developer clients, we find that collections from home buyers has increased significantly amidst advancement in the project completion. Over the last few years, we have significantly increased the granularity of the wholesale loan book. As of March 2022, no account net of provisioning exceeds 10% of financial services net worth. What is going to be our wholesale lending 2.0? There has been a significant consolidation across NBFCs in wholesale lending. PEL is among the few that have continued to remain strong despite the prolonged crisis environment. We aim to cater to a large addressable market and started executing new deals in our wholesale business. Our new approach will be more calibrated, smaller loans, granular books, and cash flow-backed lending. It will be based on our long-term relationship with borrowers with superior risk management.
We have created focused analytics-driven underwriting vertical to work along with the originators and group risk. There would be proactive asset monitoring with early warning signals. High-yield loans will only be done under tranche structures. Coming to asset quality. Our overall GNPA ratio marginally increased by 10 basis points quarter-on-quarter to 3.4%, and our NNPA ratio fell by 20 basis points quarter-on-quarter to 1.6% as of March 2022. Total provisions post the additional provision that we made during the quarter now stand at INR 3,735 crores, equivalent to 5.7% of our AUM. Provisions against wholesale AUM stood at 7.9% due to the additional provision being created during quarter four of FY 2022. The asset quality of the acquired DHFL book is in line with our expectations.
We continue to remain vigilant across our portfolio and maintain conservative provisioning to take care of contingencies arising in the future. We also have an alternatives platform. Our fund management business has marquee institutions such as CDPQ and Bain Capital Credit as our long-standing partners. The platform had more than $900 million in committed capital across two funds as of March 2022. We aim to build a robust alternatives platform by scaling up the existing funds and expanding the product line. I want to talk about our life insurance business. Through the DHFL acquisition, we have also acquired a 50% stake in Pramerica Life Insurance JV with Prudential US. The company has a customer base of 2.5 million and a network of 15,000+ agents.
Given the company has a robust balance sheet, a solvency ratio of 404%, we aim to drive growth of the business in the coming years. On the liability side, our average borrowing costs for the fourth quarter of FY 2022 declined 170 basis points year-on-year to 9.2%, while our incremental cost of funds was nearly 8.5% during the quarter. We expect the borrowing costs to decline further as we diversify the loan book, tap additional funding sources and repay or refinance our high costs there.
Moreover, we are well-positioned to navigate the current rising interest rate environments as 79% of our borrowings are on a fixed rate basis. In closing, as far as financial services is concerned, I could say that we outlined our FY 2027 aspirations and remain committed to create a scalable financial services business across both retail and wholesale lending, while delivering sustainable growth and profitability for the long term. With scalable high-tech driven retail and wholesale lending platform, significant firepower for value accretive acquisitions, as well as organic growth with a low debt-to-equity ratio of the financial services business at 2.7, and a value unlocking potential that is investment in Shriram. We feel that we are well placed to become one of the largest top quality NBFCs through both organic and inorganic growth in coming years. I now would like to come to our pharma business.
Our pharma business has delivered a 16% revenue growth, delivering revenues of INR 6,700 crores during this year, FY 2022. Our consumer healthcare and complex hospital generic businesses delivered strong performance with year-on-year growth of 48% in the consumer healthcare and 20% growth in the complex hospital generics during the year. Our CDMO business grew 10% year-on-year. The performance was impacted due to some execution related challenges faced related to logistics, availability of raw material and manpower. Our business delivered an 18% EBITDA margin during FY 2022 and 22% in the last quarter of FY 2022. Despite these short term challenges, our businesses are continuing to execute on their strategic priorities. The CDMO business, we have been focusing on expanding major sites through customer-led brownfield expansion across our facilities such as in Aurora, Pithampur, Riverview, Grangemouth, and Morpeth.
In all, we have $157 million of growth-oriented CapEx investments committed across various multiple sites. We're increasingly partnering with customers as their phase III projects transition to commercial. Our revenue from commercial products has increased 3x since FY 2019 to $56 million. We are also leveraging our end-to-end model to offer integrated services and now have a track record of executing 170 integrated projects. This number has grown by 1.5x since FY 2019 and contributes to 36% of our development order book. In addition, over the last few quarters, we've also made more inorganic investments. We've invested in Hemmo Pharmaceuticals, adding peptide API development and manufacturing to our capabilities, and in Yapan Bio, broadening our services in the biologics space. Coming to hospital, complex hospital generics.
Our businesses leverages a differentiated portfolio of 40 existing products and grew 20% year-over-year. We continue to retain leadership position in key portfolio products across multiple geographies. In addition, we have developed a strong pipeline of 36 products in niche areas, including injectable anesthesia, pain management, intra, intrathecal therapy and a broad range of other indications. In the Indian consumer healthcare business, we continue to deliver robust performance with a revenue growth of 48% year-over-year and 55% in the last quarter of FY 2022. In addition, the business has delivered to our clearly identified strategic priorities during the year. We are focusing on growth from power brands, which now contribute 57% of total sales. We continue to significantly invest on media and trade spends in FY 2022. We have engaged well-known brand ambassadors to help us improve brand recall for many of our products.
In addition, we've launched 40 new products and 18 SKUs during FY 2022. New products launched since April 2020 contribute to 15% of our sales. We've also strengthened our presence in alternative channels of distribution, including our own website, modern trade stores and e-commerce platforms. In summary, both the Carlyle fundraise for pharma, we have been investing organically and inorganically across all our pharma businesses. All of our key businesses have a compelling plan for their growth, and are executing on their strategic priorities.
In the medium to the long term, we expect about 15% revenue growth across the businesses and expect the EBITDA margins to reach 25%-28% in the three to five years time frame. In summary, overall, I would say that we are moving now towards two separate listed entities, and we have significantly enhanced our disclosures both in financial services and the pharma businesses. We believe that both the emerging listed financial services and pharma companies with their balance sheet strength and uniqueness of our business models are well-positioned to tap organic and inorganic growth opportunities and create long-term value for our stakeholders in the years to come. The board has recommended a dividend of INR 33 per share, subject to the shareholders' approval at the AGM. The total dividend payout would be INR 788 crores. Thank you very much.
Thank you very much, sir. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Yeah, thanks for the opportunity. Sir, on the pharma side, typically fourth quarter is supposed to be a high margin and, you know, in terms of unit sales, higher quarter. Considering the execution and logistics challenge, this quarter has been subdued. Will this spill over in Q1, if we, if I have to look at it from a directional trajectory perspective?
Some of our deliveries which were scheduled for quarter four could not get delivered because of various execution issues, more specifically at our overseas sites. Some of them will spill over to quarter one. However, there are also challenges with respect to non-availability of people and non-availability of materials for some of this. Considering in some of the sites we have constrained capacity, not all of them would be potential upsides for next year. Yes, to some extent, this will spill over to quarter one.
Got it. We've seen phenomenal growth in consumer product sales. Would you like to, you know, give-
Tushar Manudhane.
Little more of that.
Sir, sorry to interrupt, but your voice is not very clear, sir.
Is it better?
Yeah. Yes, now it is. Please proceed.
Okay. The consumer product sales has shown a very phenomenal growth throughout the year. Would like to have further color in terms of, you know, what kind of the growth rate can be expected for over next two to three years.
As you're aware, we had consciously decided to reinvest profits back into the consumer products business and significantly increase our media spend. With that intent, we are pushing up our brands through a lot of media-related spend. In the midterm, we expect the consumer products to grow at about 20% and with continued focus on growing the power brands through a lot of media and trade spend.
Understood. That's it from my side. Thank you.
We don't give business-wide guidance in pharma and on an overall basis, we expect the growth rate to be nearly 15%, you know, in line with our track record of the last couple of years.
Sure. That helps.
Thank you. A reminder to the participants, anyone who wishes to ask a question, may press star and one at this time. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah. Hi. Thanks for taking my question. Few of them. Firstly, can you elaborate a bit more on some of these restructured assets? Sorry, some of these assets that we've put in stage two, those mezzanine loans, you know, which sector do they belong? How many loans are there? You know, what is, say, the LTV outstanding? How much can we recover? And, you know, because it's been a while since COVID has happened. Things have recovered. We did not recognize this. And now eight quarters after COVID we're recognizing this. What really changed in the environment that we're recognizing this now?
Yeah, let me answer that first, and then you can ask the other questions. As chairman said that. First, let me give a background that these are related to non-RE, basically the HoldCo level mezzanine debts, which are loans or bonds which were given to renewable sector. Having said that, the number of accounts in the non-RE, if you have seen, before I go directly to answer your question, has been coming down. You know, we had a book of INR 9,000 crores. Today it is below INR 5,000 crores. In fact, it is below INR 4,500 crores. We have been constantly bringing it down because the, that type of a business which is non-RE at HoldCo level, we have stopped doing that business for a while.
Now coming to your question. Basically, we were looking at three of these accounts, two being from the renewable and one was an auto ancillary. One was a large account in the renewable space. As you know, we have been talking about it for the last one year. We, among the other bondholders, had put this company for sale, and we were expecting certain realizations. However, the realization which has now come through the bid process is lower than what we expected, and that is why this extra provisioning has been made by us. Similarly, in the other asset, which is of course smaller, again, a renewable asset which was put to sale.
The realization is lower than what we expected, and that is why the different extra provisions. Coming to the third one, which is an auto ancillary, it is on the auto ancillary sector supplying parts to the two-wheeler. Here we have made an extra provision looking at the performance as on date. However, this is, I would say, with an abundant caution. There would be an opportunity to recover more than the provision. The other two assets, the first two assets were basically put on the block and the sale, and we are in the final negotiations. Some of them have actually come in the papers, as you would know, and that is the reason why this extra provision has been created.
Got it. I assume you're talking on Mytrah Energy. That essentially means that Mytrah has moved out of your restructured book and into your stage two book. Is that so?
Mytrah was always into the stage two book because as you know, we are one of the bondholders at the HoldCo level and there are several, I think more than 25, lenders at the SPV level. We had jointly done an OPR for Mytrah and put the assets or the company for sale, which was a year ago.
Which loan is this that has now incrementally moved into stage two if it's not Mytrah?
No, it is not incrementally moved to stage two.
Yeah. There are multiple assets that have moved stages, Jairam. The particular asset you are talking about was already in stage two as of December. There are some other assets that have moved to stage two right now, and they also happen to be in the same sectors that Khushru mentioned a moment ago, which is renewables and auto ancillary.
Got it. It's interesting that our stage two book is up some INR 700 crore-INR 800 crore and we've made the same amount of incremental provision, INR 800 crore. That's essentially like an 800% loss given default.
No, no, that is just a coincidence.
It's a coincidence.
The numbers are just a coincidence. That is not the way the numbers have been arrived. The numbers are as you will see, the overall provision coverage at stage two level has overall been increased. Multiple assets have been incrementally provided for. Some of those assets are near the sales proceeds stage as was mentioned before. The provisions there have been trued up to whatever the realizable values are that we are seeing in the market right now. Some others, the provision coverage has been increased. It's just a coincidence that the delta increase and the increase in provision happens to be roughly the same number.
Okay. Okay, got it. If I may just ask on the wholesale lending business, what is the status of the Omkar land in Andheri that we, you know, took on our books about.
Yeah.
Four or six quarters back?
Yeah.
I think it was some INR 1,200-INR 1,300 crore exposure.
Yeah.
Any status on that, please?
First of all, let me just clarify that I've said it last time also, that please look at this as a real estate investment by the group. It's not a loan into the asset which is in Andheri East. Let me tell you what is the status of that. The good news is that, with COVID behind us being an SRA project, as you'll be aware, SRA was not allowing any permissions, etc , because of COVID, because of humanitarian grounds, during COVID. That has now gone away.
As we speak, in fact, what the first phase, as we call, where this is jointly held by us and also Yes Bank, we are in the final stage of resolution where the entire project has been sold only as to become part of the buildings that will be completed. While we speak, there is the second parcel of land, where we call phase II, which is also vacated. We are also in dialogues with other developers for monetizing the land or doing a joint development. Yes, the news in the last three months is that we have moved forward in terms of certain permissions and some in terms of negotiations also. Please look at this as a real estate project and not a loan.
Okay. How much cash flow did we receive from our sale of the first phase?
What is going to really happen, let me explain to you. Please look at the phase I and phase II together. What we are planning to do, we are going to use the cash flows from the first phase to clear up certain portions of the second phase and also maybe partly the third phase. Look at this as an integrated project. Post the second phase, we will be having a surplus, which will be quite substantial, which would take care of a substantial portion of our investment. Then of course, we need to decide whether we want to do a one-time monetization or keep on monetizing it in phases. Because you must appreciate this is a very large project, so the group will take a call phase-wise.
Who's the builder in the JDA?
We being the owners of the land, in the first phase, we have already tied up with a developer to complete the project. The second phase we are already in the bid process with the other developers. Each phase could have different developers. Because certain portions of land will be commercial, certain will be residential. This being such a large VR, look at us as master developers and master planners, and we will be allocating the phases to different developers.
Got it. My last question-
Yeah. I think there are other people also in the queue. Maybe if you wanna join the queue again.
Okay. Sure. Yeah.
Thank you. The next question is from the line of. Before we take the next question, a reminder to the participants, to ask a question, please press star and one. The next question is from the line of Abhishek Sharma from Jefferies. Please go ahead.
Yeah. Hi. Thanks for taking my question. I just wanted to understand the pharma guidance, given, in a bit more detail. If I understand correctly, what you gave in terms of revenue growth and EBITDA margin was more of a medium-term guidance. I wanted to have more color on near term. FY 2023, what kind of growth can we expect because of spillover, would it be more than 15%? Would it be lesser? Also, on the margins, this 25%-28% trajectory, is it back-ended? Do you expect to achieve it within FY 2023 itself? If not, then by when? Thanks.
For FY 2023 specifically, we are targeting growth in the high teens. In terms of margin, considering the current inflationary scenario and highly volatile environment, I don't think it would be prudent to make a guidance right now. We'll keep that for later. But on revenue, we are targeting a growth of high teens.
Is it safe to say that 25%-28% margin guidance, this is more back-ended? Do you have a timeframe by when do you expect to achieve it?
As we have stated in the past, it's over a three to five-year period that we are targeting to achieve this margin range.
Right. Got it. Thank you.
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star and one at this time. The next question is from the line of Vinod Jain from WF Advisors. Please go ahead.
Sir, this is more of a suggestion than a question. Whether you can have a finance day like you had a pharma day some years back, to explain in detail the retail lending you are proposing to do in the affordable housing space.
Yes, it's very much on our mind. It is something that you should expect to see us go forward with. We just need to think through the timing in the context of the demerger that is coming about. It is, it's a good suggestion. It is something that we are seriously thinking about.
Thank you.
Thank you. A reminder to the participants, anyone who wishes to ask a question may press star and one. The next question is from the line of Deepak Gupta from SBI Pension Funds. Please go ahead.
Hi. Thank you for taking my question. I just wanted clarity on this non-real estate exposure of INR 4,500 crore roughly. This INR 2,300 crore which has moved from stage one to stage two is a part of that INR 4,500 crore, and this does not include Mytrah Energy. Is my understanding correct?
This is part of INR 4,500 crore non-real estate book. Mytrah is part of that INR 2,200 crore.
I thought Mytrah was already in the restructure. Mytrah was already restructured, right? You would already have a 10% provision on that.
Yeah. As Mr. Jijina mentioned that given that we are in the process of, you know, closure on some of these transactions, we felt that those transactions will need some more provisioning, and hence we have taken into that. This basically also indicates that, you know, the transactions are going closer towards closure.
Understood. What is your current restructured book now?
It's same as we mentioned last quarter. It's almost 3% of our wholesale loan book.
Okay.
The restructured book, I think the restructured book, we have only two assets. One from the real estate, which was roughly around INR 170-INR 180 crores, and the other was Mytrah. With Mytrah going away, the OTR asset will be only one, which will be in the real estate space.
Okay, great. The second thing on the retail segment now, I can see that disbursements have done quite well for the fourth quarter in the retail segment. Somehow the loan book has been flat on a quarter-on-quarter basis, if my understanding is correct. It's INR 21,552 crores. Last quarter also was outstanding loan book was INR 21,544 crores. Does it mean that the demand book is replenishing at a very fast pace or you're having repayments, prepayments on the demand housing book?
I think, your observation is accurate. The AUM of the retail book has been broadly flat. It has actually increased by like half a percent or something through on a quarter-over-quarter basis. We are seeing total customer reduced attrition of just under INR 500 crores a month.
We saw, of course, you know, roughly INR 1,500 crores of disbursement. That's why you're seeing roughly flat AUM. However, this has to be seen in the context of how the Dewan book is bound to grow and develop, right? From the entire set of Dewan branches. As more and more disbursements happen, the crossing of the line between disbursement and attrition will take place, which has already taken place in March. In January and February, the attrition amount was greater than our disbursement amount. In the month of March, our disbursement amount became significantly higher than attrition and has stayed that way since.
You should expect that, you know, this trend of AUM growth now starting to happen, that will continue. In the first six months, we were seeing the full force of the attrition of the DHFL book, but only a very small part of the DHFL book was still originating disbursement. You saw the AUM pressure. We are now on the other side of that equation.
Sure. My third question, Jairam, is on the, you know, the fixed and floating rate mix for the asset side. I believe, you've given in a presentation 37% of the loans are fixed. They are fixed for what duration? What will be the duration of this loan book? I suppose this would be real estate loans, which are fixed. This will be the wholesale loans which are fixed, I guess.
You're talking about the asset side or liability side? You're talking about the asset side.
On the asset side, yeah.
See, the asset side, you've got both wholesale and real estate in the fixed rate side. On the retail side, apart from housing and LAP business, pretty much everything else is gonna be fixed rate. You can imagine that all the fixed rate business that we're gonna have is gonna be roughly of the four-year kind of average maturity.
Understand. The fourth question is, I believe you will have taken an enabling resolution to raise INR 600 crore through NCD. Currently your cost of funds is 9.2%. Do you think you'll be able to raise money at a lower coupon versus the current cost of funds at 9.2%?
It was mentioned a little bit earlier during the call that on an incremental basis, our coupon at which we raised money in Q4 was roughly 8.5%. Now, let's see. The environment keeps changing, and some of these enabling resolutions one takes without having a very specific idea of when we wanna go to the market to raise. When the market opportunity is right, we will go and raise.
Understood.
I will reiterate that our book today is extremely liquid. We have INR 8,000+ crore of cash that is sitting on the balance sheet. There is really no need for us to borrow anything significant in the short term. We are very liquid right now.
Let me add, Jairam, some couple of points here to this. Number one, as Jairam said, that already we are sitting on high liquidity. Number two, I think you asked a question on the mix between fixed and floating on assets. I think on the liability side, in fact, we are 80% fixed and 20% floating. I think that we should take that also into account. The third is that, in fact, in the last few months, rather than raising money, we have been actually prepaying the high cost debt with the high liquidity which we have, and it continues to have with the wholesale also continuing to run down. I think you should look at it in that context.
Sure. I hear you. Thank you so much.
Thank you. The next question is from the line of Bhaskar Basu from Jefferies. Please go ahead.
Yeah. Good evening. I had a couple of questions. Firstly, the retail NPL of about 1%, could you clarify, does this pertain to the DHFL book or the new businesses which you have generated over the last six months?
No, it's all gonna be the legacy book. Bhaskar, the new book has not had enough time to get into NPA. It will take. It will get there, but it's just not there yet. The book that you see here, this is both the legacy book of DHFL, which over time, some part of the standard book will continue to flow. And also the small legacy book that was there in PCHFL, that was also small part of it will continue to grow. In terms of slippage rates, these are very, very small slippage rates, so it's not really, you know, moving in any significant way.
As far as the DHFL standard book is concerned, our models already predict a certain level of new NPA formation from the standard book of DHFL, which is totally priced into the transaction. What we have seen so far, since September thirtieth, has been entirely in consonance with what our models have predicted.
Any updates on the recoveries from the off-balance sheet book on this, in this context?
From the off-balance sheet book? Are you talking about NPA recoveries et cetera, or are you talking about off-balance sheet?
Off-balance sheet NPLs of DHFL. From where, I mean,
Yeah.
You were expected to recover something.
Let me take this opportunity to explain the concept of POCI, which, I hope some of you, caught. We made a significant disclosure on this in the presentation. POCI, which is, Purchase or Originated Credit Impaired, is a book that we have created and we have specifically disclosed. You can think of this, we have not used that phrase in our disclosure, but you can think of this broadly as a bad bank. Essentially this is where all the stressed part of the book actually goes and sits. From DHFL, roughly INR 9,800 crores of face value of assets has been moved to or INR 9,500 crores of assets has been moved to this category called POCI.
It has been recognized on the book at a value of INR 3,500 crores. In other words, it has been marked down by 63%. What we are saying is this quote-unquote bad bank is likely to have a loss given default of 63%. Now this in the accounting standard, this POCI book will continue to remain in that POCI category forever. These accounts are never gonna become stage one or stage two or stage three. They're never gonna become NPA. They're just gonna remain in the POCI book forever. All the recoveries that we make here will go towards either reducing the value of POCI or if our loss given default is lower than what was assumed in this 63% haircut, then it will come through to through our PNL.
That's the way in which the DHFL stress book has been accounted for in our balance sheet right now. With that background, let me just come back to talking about the recoveries that have happened. In the six months since we have taken over DHFL, we have on a cash basis recovered INR 715 crores worth of loans from this POCI book. Of that INR 715 crores, roughly 425 odd crores has come in this last quarter, this Q4.
This 715, of that some INR 430-odd crore has come from the NPA book, of which there was about INR 7,000 crore available, and the rest has come from the non-NPA but stressed book, all of which sits in that POCI context. As you can see from that overall POCI book, which is marked down by 63%, we have already recovered INR 715 crore. That is reflected in both, in some part in the interest income side and some part in the provision block.
Okay. Thanks. That's very helpful. Just a second question on the guidance of 5x-7x increase, and as we've seen, basically the disbursements has been scaling up faster than the book growth. How should we think about housing disbursements as a part of this INR 2,500 crore run rate? And how should we think about it from a perspective of book growth in housing?
Overall, we should assume that housing is gonna be just under half or around half of the new disbursements that we do. You know, from a book growth perspective, we don't have specific guidance for, you know, the short term. I think it's fair to assume that the overall book growth will be, you know, well north of 20%.
Thanks. Just one last housekeeping question, if I may. What was the write-off? Were there any write-offs during the quarter?
No.
Okay. Thanks.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.
Hi. Thanks for the opportunity. On this affordable housing side, so can you give some color what is current size of the book and how do we really plan to expand and what will be the NIM that we are looking? I mean, our aspiration of the NIM in those books.
Thanks for your question, Bharat. If you look at the overall book of, you know, INR 21,000 crore, you will, as things stand right now, roughly 70% of that is in this category that you would call affordable housing. Essentially, the housing book with less than INR 30 lakh ticket size. The average ticket size of our housing portfolio is about INR 18 lakh . Right? You know, pretty much the entire housing loan portfolio that we have is in the affordable category. The new business that we are originating in this segment, Bharat, we are originating at a yield of 11.25%.
From there you can back calculate onto what the NIMs are, you know, based on whatever leverage assumptions that you want to assume, right? Eleven and a quarter is our yield. As you can see, it is meaningfully higher than what some of the prime customers in metro towns, etc , are able to get today for housing. That's because the customer segment that we are going after is a segment that is less served by banks, and the properties are also less well understood by banks, and hence we are able to extract this kind of thing.
Okay. Out of this non- RE book of haircut level, INR 4,500 crore, INR 2,200 crore is estimated. How much further stress are we expecting or stress that we are seeing as of now can overflow in next 1 year?
Last we left, there was a question about whether we expect any further slippages into stage two or whether we feel we are appropriately provisioned for the INR 4,500 crore book, which is the non-RE structured lending HoldCo book that we spoke about before. Our belief is that we are well provided right now. As we mentioned before, we will, we'll keep looking at seeding of assets and whether anything needs to change. For now, we feel very good about where we are with the increase that we did this time, or this quarter. On the provisioning side, we feel that we are fairly well provided.
Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.
Yes. Thank you for taking my question. Good evening to all of you. I mean, most of my questions have been answered and maybe the next two questions that I'm going to ask are not going to be anything that's not been discussed on this call today. I just wanted to ask this for better clarity or maybe to understand this more holistically. The first question around I mean this INR 4,500 crore of non-real estate gross structured finance at the HoldCo level.
I'm just trying to understand. I mean, someone else also pointed out at the beginning of the call. I mean, just when we were thinking that, I mean, we are all through COVID and we have managed it, I mean, really, really well, especially your wholesale loans. I mean, you have these maybe three accounts which kind of stumble out of your closet and you're having to take, I mean, I would say aggressive provisions on these loans. I mean, don't you think, I mean, five months down the line that you're looking at a graph, I mean, pharma demand here wherein the expectation will be that, I mean, the disclosures would have to kind of match up to what other HFCs and VFCs do.
Don't you think that over the next maybe two quarters it will be prudent to kind of recognize anything that you think could be stressed and maybe provide against that? That's the first question. The second question is, I mean, while our disclosures have meaningfully improved, and I must compliment your team for that, and especially in the financial services side, but we still find it kind of difficult to put the various puzzle pieces of the puzzle together. I mean, I think during the call we suggested that we're looking at something like a 40%-50% kind of a disbursement CAGR over the next five years in between disbursements. I think somewhere we also talked about loan book growth north of 20%.
I mean, are we looking at, I mean, the consolidated AUM growing at a 20% CAGR over the next five years? I mean, and how would wholesale being in this scheme of things? I understand your guidance for 1/3 of the book being wholesale over the medium to longer term. And then lastly, I mean, so let's say five months down the line when we are, I mean, required to maybe report your financial services P&L and balance sheets, I mean, what is it that you have in mind right now? I understand it could be a difficult question, but what is it that you have in mind for the NIMs? What would be the cost ratios looking like?
Eventually, I mean, your financial services business, including the newer product segments that you're doing, what kind of credit costs can be there and what kind of eventual ROE that could be, you could be looking in your financial services business? Thank you so much.
Wow, that's a lot of questions. Thanks for all of those, Abhijit. I appreciate your interest. Let's take your questions one by one. Your first question was around the INR 4,500 crore, and, Kenneth, that's where we started. Let Khushru Jijina answer that, and then we'll take some of the rest.
Yeah, as I said, let me repeat this, that the major one, in fact we just spoke, a few minutes ago is Mytrah. I wanna make that statement because you mentioned about disclosure. Let me again go through this whole process of the major, out of the three, the other two being small. The big one is Mytrah. We have been always speaking about it. It was in stage two. This asset was put by all the bondholders, including us, and a host of public sector banks who were at the SPV level for sale for the last one year. There was a bid process which was run by Barclays.
As we got the bids and finalized, we realized that we needed to provide more because the realizable value is less than what we had all expected. That is why we are providing this. In fact, a major portion out of this one-time provision is on account of Mytrah. It's not that we knew about it. It was provided before. It was in stage two because we had done an OTR along with all the banks. However, unfortunately, the value realization is lower than what all the lenders expected. I just wanted to make that point once again on this provision.
Let me then make the sort of broader point that you are asking, right, Abhijit? Which is basically as we move towards a financial services entity over the next few months, how do we think about disclosures? How do we think about cleaning up the book from a provision standpoint, et cetera? You made some really good points. I mean, clearly, we think similarly. You saw our actions this quarter, so that should reflect what our mindset is. We wanna make sure that by the time we have a separately- listed financial services stock, a few things happen. A, our disclosures are top-notch and that you're able to build a good feel for what the financial services business looks like.
B, that a lot of the cleanup act, if any, that needs to be done has all been taken care of. Please recollect that two years ago, we had taken roughly INR 2,000 crores of incremental provision on our books, to take care of any contingencies that might arise out of COVID, et cetera. In this quarter, when we have gone ahead and actually made the incremental provision, we did have the optionality to actually dip into that that big pool that was created a couple of years ago. We chose for exactly the reasons that you articulate not to do that.
We chose to make incremental provisions and take them through P&L and keep retaining the old provisions that were made two years ago, because we wanna make sure that the balance sheet is fully robust and strong by the time we list as a separate FS entity. It is very much on our minds. You will continue to see us to behave in ways that are reflective of that desire to have a conservative and robust book when we you know when we list. Your second point was on disclosure. I'm glad you noticed.
We have, you know, in a lot of our conversations, one-on-one, et cetera, we have been asking you all to tell us what you would like to see, from a disclosure standpoint. What you see this quarter, for the first time you're seeing us disclose a lot of information on the FS side specifically, right? Showing separately what our, you know, P&L is. So showing separately what the stage-wise classification is of assets, et cetera. You know, all the details about our POCI book. There is a lot of disclosure that we have tried to put in this quarter, which we believe will lay a good, strong foundation for all of you to be able to start building robust models from a more firm, starting point, right?
I understand that you will probably need more over time, and that's fine. We will continue to listen to you on what is most useful, but hopefully you find this a useful first step as you started off by saying, and hopefully this will allow you to understand our FS business you know very deeply. Our intent and desire, let me be very clear, is by the time we are a separate listed company, our intent and desire is to be fully caught up in terms of whatever you may think is the best and most appropriate best-in-class disclosures that make sense for our investors. To have a balance sheet which is adequately bulletproof by that time.
Thank you, Jairam. Lastly, if you could just guide on how are you kind of looking at the DuPont of the financial services business?
Oh, yeah. The DuPont of the financial services. We've shown some balance sheet view. We have not shared a P&L view for the five years. You know, our thinking right now on this, Ajay, is that we are thinking that when we do a financial services day that we were referring to a little bit earlier in this conversation, that might be when we actually talk to you all in a little bit more detail on that front. As of now, what we are saying is, an overall FS AUM doubling over five years. That gives you a little bit of a sense of what the figure is gonna look like.
Also, the mix shifting from where we are today with the 64-36 wholesale retail to 35-65 retail wholesale, right? That's broadly where we are going. From there you can individually derive what the wholesale figure is gonna look like and what the retail figure is gonna look like. On top of that, we have shared a little bit of what our expectation is on retail disbursement figures. This should start giving you a little bit of a sense, which hopefully it's a good starting point. Let's discuss more in detail as we get into the FS day about what else might be useful from a P&L standpoint.
Sure. Thank you so much for patiently answering the questions. We look forward to the FS day, and I kind of wish you and your team the very best as you embark on phase III of your transformation journey. Thank you so much.
Thank you.
Thank you so much. Appreciate your wishes.
The next question is from the line of Aditya Jain from Citigroup. Please go ahead.
Hi. One clarification. The POCI book has nothing to do with fraudulent assets, which are sub judice, right?
No.
This is separate from those completely?
No, no. This is completely different from that.
Perfect. Okay. Thank you.
Thank you. The next question is from the line of Sachin Kumar from SBI. Please go ahead.
Yeah. Good evening, everyone. Thanks for the opportunity. I have a similar question. Like, this pharma division is, I think it contributes about 50% to the overall profit of PEL, the overall revenues of PEL. How does the company project PEL after carving out of pharma business? How PEL itself has a strong holding given the financial services and the pharma business. How does the company-
Can you please repeat the question?
Can you please repeat the question?
Yeah. I just wanted to know how after the carving out the pharma business, how do you project PEL in the next five years just as a financial services business?
How do you project PEL?
Correct.
See, the intent, as you know, is to carve out Pharma by the last quarter of this calendar year. We have shared separate financials for the FS business right now, and you have the consolidated as well. From there you can derive what some of these, you know, Pharma, you know, financial metrics are. The structure from a separation perspective is a pretty straightforward one.
The FS business as it exists, along with the equity that is allocated to FS, as well as what we have termed unallocated equity, all of that will stay in this entity of PEL w hich will hopefully, you know, with RBI's blessings, turn into a regulated NBFC entity. That entity, along with all our lending business, the insurance business, the alternatives business, and any potential inorganic transactions that we might do in the FS space in the future to utilize some of the unallocated equity, you know, will form the heart of the FS business. That's the balance sheet P&L that you will see going live in the later part of this year.
How much is the AUM we are targeting at for the next five years, sir?
The AUM, as we mentioned before, currently we have a financial services AUM of INR 65,000 crore.
Okay.
We have said that over a five-year time frame, we are thinking of, we are building a business that will double this, right? We are not offering specific guidance for the next six months, if that's what you're asking about. At the point of.
Yes.
The merger, what our AUM will be, we're not offering specific guidance for that.
Okay. All right. I would also like to take this opportunity to personally congratulate Piramal sir for being awarded the Commander of the Order of the British Empire by the U.K. honorary chair there, and to the entire Piramal team. I have one question for Piramal sir. If I was just going through an article where sir had mentioned about 10 years back that India as a country was not a suitable option for investment because of the bureaucracy and all those reasons. Has there been a change now? Like, has sir's perspective changed, and does he look forward for investment in India for the pharma business? For expansion of the pharma business.
I think so. It is an investment for pharma business, but let's take this off the line. I think, you know, it's a longer discussion. Thank you.
All right. Thank you, sir. Thank you so much, sir.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Hi, sorry. Thanks for the follow-up. Just a couple of clarifications. When we mention about this 40%-50% CAGR in retail disbursement, that's from the steady state INR 2,500 crore-INR 3,500 crores quarterly number, right?
Piran, like, see, the way we have framed it here, Piran, and we can talk more about it offline, you know, if you want. The way we have framed it here is a 40%-50% CAGR over FY 2022 numbers.
Fair enough. The second clarification is that the INR 900 crores DHFL book, that PICO book, is that part of the INR 18,000 crores we got from Dewan, or is it over and above that? I'm a bit confused here.
No, no. Basically, think about it this way, Piran, that we, the transaction was for INR 34,000 crore, right? We paid INR 34,000 crore, of which INR 14,000 crore was cash on the balance sheet, so remove that. That gets you INR 20,000 crore. That INR 20,000 crore was allocated roughly as INR 17,000 crore in retail and INR 2,000 crore in wholesale. Now, you look at the book and then you say, "Okay, what is the face value of the retail book?" The face value of the retail book, including the NPA book there, et cetera, is, let us say, INR 25,000 crore.
Against that INR 25,000 crore, if you are going to allocate something like INR 17,000 crore or thereabout, that essentially indicates that there is a big sort of haircut. The question is, how will that haircut be allocated? The POCI book is a part of that INR 25,000 crore original DHFL book, which had already turned into NPA before we purchased the portfolio or was in deep enough stages of delinquency that our models suggested that they are going to become NPA anytime soon. We took all that book, which we are terming originated as credit impaired, and we actually got it on our books and we put it into this firewalled category called POCI and said, "This essentially has become a bad bank.
I'm gonna massively haircut this piece, and then anything extra that I get out of that will essentially be PNL accretive. Otherwise, the rest of the book is essentially my good book. That's the way this has come about. It's all part of the DHFL transaction only. Nothing different.
Got it. Over and above those INR 18,000-INR 19,000 crore of loans you all took over on your balance sheet?
Yes.
Got it. Okay, fine. That's fine. Thank you.
There is also, in case, in case that's causing the confusion, there is an off-balance sheet item of another INR 18,000 crores.
No.
Which is-
That was not the confusion.
Oh, okay.
My only thing was that the book value of the loans that you all took over was INR 40,000-INR 42 ,000 and it came into your balance sheet at INR 18,000-INR 19,000 , excluding all the cash.
Correct.
Just the loan.
Right.
That means a haircut of INR 23,0000-INR 24,000 . I wanted to know if this INR 9,500 was part of the INR 23,000-INR 24,000 or part of the INR 18,000-INR 19,000 . I've got the answer.
Cool.
Got it. Thank you.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Over to you, sir.
Yes. Thanks, everyone. In case you have more questions, please feel free to reach out to the team, our team here. Thank you.
Thank you. Ladies and gentlemen, on behalf of Piramal Enterprises Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.