Executive Summary

Piramal Enterprises Limited (PEL), part of the Ajay Piramal Group, has undergone a significant strategic transformation over the last few years. What was once a conglomerate with exposure to pharmaceuticals, financial services, and real estate has now evolved into a pure-play financial services entity with a strong focus on retail lending and mid-market corporate finance.

This transition has been neither cosmetic nor gradual — it involved an overhaul of the company’s business model, balance sheet, and corporate structure. From the demerger of its pharma business in FY22 to the acquisition and integration of DHFL, PEL has effectively repositioned itself as a scaled, retail-led NBFC operating in one of the most competitive lending markets in the world.

As of Q3 FY25, Piramal’s financial services arm manages an AUM of INR 78,362 Cr, of which 87% is classified as “growth AUM”, comprising retail and a renewed corporate lending book. The remaining 13% comprises legacy assets — largely large-ticket wholesale exposures inherited from earlier cycles — which the company has been actively running down. The retail business spans housing loans, LAP, used car finance, personal loans, and digital lending, while corporate lending has been relaunched under a revised framework referred to as “Wholesale 2.0.”

The company’s strategic evolution has been marked by five major phases:

1. Entry into Financial Services (FY11–12): Initial build-up through NBFC and fund management platforms
2. Wholesale Lending Scale-Up (FY13–19): Aggressive AUM growth primarily focused on real estate developer finance
3. Acquisition of DHFL (FY21): Gained access to a large-scale retail lending book and national distribution footprint
4. Corporate Restructuring (FY22): Pharma demerger, simplification of the holding structure, and move toward a pure-play NBFC model
5. Retail-Led Growth (FY23–25): Rapid scaling of granular retail AUM and planned rundown of legacy exposures

We try to analyze the transformation in depth — breaking down the rationale and impact of the DHFL acquisition, evaluating the legacy book wind-down, tracking the scale-up of the retail and wholesale portfolios, and assessing whether the current valuation captures the embedded value and long-term earnings potential of the business.

Despite making difficult but necessary decisions such as accelerated provisioning and one-time clean- ups, Piramal today finds itself with a relatively clean balance sheet, an improving capital efficiency profile, and a clearly defined path to scalable profitability. However, the market has yet to fully acknowledge this shift, pricing the company below book value and attributing minimal upside for optional assets such as tax credits, strategic investments, and insurance JVs.

In this context, the investment case for Piramal hinges on a simple question: Can the company execute on its long-term vision of becoming a stable, profitable, retail-led NBFC, and is the market underestimating its progress so far?

 

DHFL Acquisition: Low-Cost Entry into Retail Lending

In FY21, Piramal Capital and Housing Finance Ltd. (PCHFL), a wholly owned subsidiary of Piramal Enterprises, acquired Dewan Housing Finance Corporation Ltd. (DHFL) through a National Company Law Tribunal (NCLT)-approved insolvency resolution process. DHFL, once a leading housing finance company, had collapsed under allegations of financial irregularities and mismanagement by its former promoters.

Transaction Structure and Cost

 The acquisition was completed via a combination of:

• INR 14,717 Cr in cash, including INR 12,800 Cr of acquired cash already on DHFL’s balance sheet
• INR 19,123 Cr in debentures issued to creditors

This brought the total consideration to INR 33,841 Cr, but due to the cash component and structure of the transaction, Piramal’s net outflow was materially lower. In effect, the company acquired DHFL’s assets and platform for a very low net economic cost, relative to the scale of assets acquired.

For accounting purposes, this was treated as a reverse acquisition under Ind AS 103, with DHFL as the accounting acquirer and PCHFL as the legal acquirer.

Assets Acquired

The transaction resulted in the acquisition of:

• A loan book of INR 22,614 Cr
• Cash and equivalents of INR 14,625 Cr
• Additional investments, property, and other assets bringing total assets acquired to INR 41,853 Cr

 On the liability side, provisions were made for CDO exposure, financial liabilities, and tax dues, totalling INR 7,839 Cr.

The net assets recognized under the scheme were INR 34,014 Cr, leading to a bargain purchase adjustment (negative goodwill) of INR 173 Cr, recorded directly in equity.

Additional Financial Implications

• Contingent tax liabilities of INR 3,437 Cr were reversed in FY23, providing a one-time boost to net worth
• Deferred tax assets of INR 6,209 Cr were identified, although their recognition depends on future taxable income
• Acquisition cost of INR 72 Cr was incurred, recorded under exceptional items

These adjustments resulted in a transaction where Piramal paid close to nothing on a net basis for acquiring the operating platform, customer base, and distribution network of DHFL.

Strategic Fit and Integration

 The acquisition gave Piramal immediate access to:

• A granular retail loan book
• A pan-India distribution network
• Retail lending infrastructure and operating systems

Following the acquisition, Piramal rebranded and integrated DHFL into its own retail lending strategy, using it as the foundation to scale retail AUM in subsequent years. By FY25, retail AUM had grown to INR 59,093 Cr.

Conclusion

The DHFL acquisition provided Piramal with a low-cost entry into retail lending. While it involved integration and cleanup challenges, the transaction brought with it meaningful strategic value at a relatively modest cost. The recovery upside, tax shields, and existing infrastructure acquired continue to benefit the company’s long-term retail strategy.

Legacy Business: Run-down of Concentrated Wholesale Exposures

As part of its broader transformation strategy, Piramal Enterprises has made a deliberate effort to reduce its exposure to legacy wholesale loans — a segment that once formed the bulk of the company’s lending book. These legacy assets were primarily large-ticket, concentrated exposures to real estate and infrastructure developers, many of which turned stressed over time.

Following the DHFL acquisition and the shift toward a retail-dominant business model, Piramal initiated a planned run-down of this portfolio to de-risk its balance sheet and improve long-term asset quality.

Rationale for the Run-Down

• Asset Concentration Risk: The legacy book was heavily skewed toward a small number of borrowers and sectors, especially real estate.
• Strategic Misalignment: These exposures no longer fit Piramal’s new retail-focused lending
• Balance Sheet Simplification: Winding down the legacy book allows the company to focus on granular, lower-risk lending and improves capital deployment efficiency.

Progress and Impact

 Between FY22 and Q3 FY25, Piramal reduced its legacy AUM from INR 43,175 Cr to INR 10,353 Cr, reflecting a sharp drawdown in exposure. This was achieved through a mix of repayments, settlements, write-offs, and provisions.

• The company has taken a ~25% haircut on the legacy book over this
• Total net worth has remained resilient despite the clean-up, moving from INR 30,120 Cr (Mar-22) to INR 26,924 Cr (Dec-24).
• The run-down was accompanied by provisions and write-offs of approximately INR 11,500 Cr, partially offset by gains and recoveries from other areas (e.g., AIF reversals, tax credits).

The current coverage ratio on the remaining legacy book stands at ~18%, suggesting a conservative approach to residual risk.

Strategic Commentary

 Management has communicated that its objective is not to hold out for uncertain recoveries but to exit these exposures efficiently and redeploy capital into higher-yielding, lower-risk segments.

The company has reiterated its intent to reduce legacy AUM to:

• <10% of total AUM by FY25
• <5% of total AUM by FY26

 This approach prioritizes transparency and predictability, even at the cost of short-term earnings volatility.

Economic Considerations 

• The average haircut taken over FY23–FY25 on the legacy rundown is estimated at ~24%, consistent across years
• Write-offs include P&L provisions and specific exceptional charges such as AIF-related provisions
• The rundown has had minimal impact on net worth, reflecting effective use of embedded buffers

Conclusion

The legacy book run-down represents a strategic and financial reset for Piramal. It aligns the company’s balance sheet with its forward-looking lending model and removes the overhang of concentrated exposures that previously defined the business. While the process has involved write- downs and capital charges, it has also created space for cleaner growth and improved investor confidence in the company’s long-term stability.

Valuation: Asset Base, Optionality, and Market Disconnect

As of Q3 FY25, Piramal Enterprises is trading at a market capitalization of ~INR 22,000 Cr, compared to its reported net worth of INR 26,924 Cr. Despite its transition to a cleaner, retail-led lending model, the stock continues to trade at a discount to book value (P/B ~0.82x) — a valuation that suggests investor caution or incomplete recognition of the company’s ongoing transformation.

FY28 Management Guidance

 Management has articulated clear medium-term targets for FY28:

• AUM: INR 1.5 lakh Cr (21% CAGR from FY24 levels)
• Retail AUM Mix: 75%
• Retail Lending CAGR: 26%
• ROA: 3.0–3.3%
• Operating Cost Ratio: Targeted improvement from current ~4.5%

If achieved, these targets imply a structurally profitable and capital-efficient NBFC platform with annual earnings potential in the INR 4,000–4,500 Cr range.

Valuation Components and Embedded Optionality 

Core Lending Platform

• Current AUM: INR 78,362 Cr
• Growth AUM: INR 68,009 Cr (Retail + Wholesale 0)
• GNPA/NNPA: 8% / 1.5% (moderate asset quality risk)
• Capital Adequacy: 7%, Debt/Equity ~2.3x
• Profitability ramp-up will depend on scale, asset quality, and opex control

Deferred Tax Assets

• INR 14,513 Cr of carry-forward tax losses
• Estimated present value: INR 2,000–2,500 Cr
• Could shield future profits, improving RoE over time

Investments and JVs

Asset	Estimated Value	Notes
Shriram Group stake	~INR 1,700 Cr	Minority stake, not marked to market

 Life Insurance JV (Pramerica)

• INR 1,919 Cr (GWP)
• Strategic optionality; monetization unclear

Alternatives platform              

• ~$1.0 Bn (~INR 8,300 Cr)
• Mix of on- and off-balance sheet exposure

These assets are not fully reflected in core NBFC valuations but provide upside optionality.

Market Sentiment and Valuation Gap

 Piramal has undertaken a proactive cleanup of legacy assets, including accelerated write-offs and provisions (~INR 11,500 Cr since FY22). While these actions were aimed at simplifying the balance sheet and reducing long-term risk, the market appears to be penalizing the company for the short- term earnings impact rather than rewarding it for increased transparency and strategic alignment.

This has created a disconnect where:

• The core lending platform is being valued at ~0.6–0.7x book
• Embedded optionality (tax shields, investments, insurance) is not being reflected in the stock price

Valuation Metrics Snapshot

 

Metric                                 Value

• Market Cap                          INR 22,000 Cr
• Net Worth (Q3 FY25)           INR 26,924 Cr
• Price to Book (P/B)               ~0.82x
• Price to Earnings (P/E)          Not meaningful due to recent one-offs

Adjusted for Optional Assets P/B falls further to ~0.6–0.7x

Note: Data as of March 27, 2025. P/E Ratio denotes Price-to-Earnings; P/BV Ratio denotes Price-to- Book Value. Dividend Yield represents dividend as a percentage of the current share price.

 

Normalization Potential and Margin of Safety

 Piramal’s current profitability metrics — including earnings per share and return ratios — have been significantly impacted by the run-down of the legacy wholesale book, which has involved material write-offs and provisions. This process is expected to be substantially complete by Q4 FY25, after which the company’s reported performance should better reflect its retail-led, growth-focused lending franchise.

With the legacy overhang behind it, Piramal’s core lending business is likely to become more comparable to peers like Cholamandalam, Sundaram, and Bajaj Finance in terms of profitability and return metrics. The company has already outlined FY28 guidance with targeted ROAs of 3.0– 3.3%, which are in line with those achieved by established retail NBFCs.

Given this context, current valuations may offer significant upside potential:

• If management delivers on its long-term guidance, there is potential for earnings-led re- rating.
• Even if targets are not fully met, the current valuation provides a wide margin of safety, reducing the risk of substantial drawdowns.

In essence, Piramal today represents a classic asymmetrical risk-reward setup:

Downside appears relatively limited due to the conservative valuation, while upside could be substantial if the business stabilizes and scales profitably.

Key Risks and What Could Go Wrong

While Piramal Enterprises has undergone a substantial transformation, several risks remain that could impact its ability to meet long-term financial and strategic objectives. These risks relate to business execution, credit quality, regulatory environment, and market perception.

1.  Execution Risk on Retail Scaling

Piramal has rapidly scaled its retail book from ~INR 21,500 Cr in FY22 to ~INR 59,000 Cr by Q3 FY25. This level of growth — especially across unsecured and small-ticket segments — brings with it operational and underwriting risks.

• The branch-led distribution model depends on consistent productivity gains and credit discipline
• High growth in newer products (personal loans, used car finance) carries higher delinquency risk if not managed carefully
• Cross-sell and digital origination strategies are still maturing and may not deliver expected efficiency

2.  Asset Quality and Credit Risk

 While current GNPA and NNPA levels (2.8% / 1.5%) are moderate, the retail book is still seasoning. A weakening credit cycle, especially in semi-urban and informal segments, could lead to:

• Higher slippages in unsecured or low-income borrower segments
• Increased provisioning needs that impact profitability
• Stress on collections infrastructure, especially as scale increases

3.  Market Confidence and Valuation Overhang

 Despite progress, the stock continues to trade at a discount to book value. This reflects lingering investor caution around:

• Legacy asset recognition — investors may remain skeptical until the rundown is fully completed and no residual write-downs emerge
• P&L volatility — past exceptional items and one-off gains create noise in assessing normalized profitability
• Lack of visibility on monetization of strategic investments (Shriram, insurance JV, alternatives platform)

If market perception does not shift post-FY25, the valuation gap may persist longer than expected.

4.  Regulatory and Funding Risks

 As a retail NBFC, Piramal is exposed to regulatory tightening (e.g. RBI’s scrutiny on unsecured lending and AIF exposure) and changes in borrowing costs.

• NBFCs remain dependent on wholesale funding and capital markets for growth
• Rising rates or tighter liquidity could compress spreads
• Regulatory changes on provisioning norms, securitization, or AIF treatment could impact capital or earnings

5.  Tax Asset Utilization Uncertainty

 The company holds deferred tax assets of INR 6,209 Cr and carry-forward tax losses of over INR 14,500 Cr. However:

• Recognition of these assets depends on the generation of sufficient taxable income over time
• Any legal, structural, or regulatory challenges could delay or reduce the economic benefit
• These tax assets form a non-trivial part of the embedded valuation narrative

Conclusion

 While Piramal’s strategic direction is clearly defined, its ability to deliver consistent and profitable growth in a competitive lending environment remains a key variable. Execution discipline, credit quality, and communication with the market will be critical in closing the valuation gap and building long-term investor confidence.

Corporate Action: Reverse Merger of PEL with PCHFL

Piramal Enterprises has announced a reverse merger with its wholly owned subsidiary, Piramal Capital and Housing Finance Ltd. (PCHFL), with the aim of simplifying its corporate structure and aligning operations under a single listed entity.

This move marks the next step in the company’s ongoing transformation from a diversified conglomerate to a focused, retail-led NBFC. Upon completion, the merged entity will be renamed Piramal Finance Ltd.

 Rationale and Implications

Currently, Piramal Enterprises functions as a holding company, with PCHFL operating as its 100% subsidiary. This structure introduces a “holding company discount”, as investors typically assign lower valuation multiples to parent entities with operating subsidiaries due to perceived complexity, limited direct cash flow access, and cross-layer risks.

The reverse merger addresses this by:

• Consolidating operations, assets, and liabilities into a single legal entity
• Enabling direct listing of the operating business
• Improving transparency, simplicity, and potentially increasing investor confidence and valuation multiples

Following the merger, the market will be able to directly value Piramal Finance Ltd., removing the structural opacity that has often weighed on Piramal Enterprises’ stock.

Merger Timeline (as per company guidance)

 Stage                                                              Timeline

Board Approval                                               Q1 FY25 (May 2024)

Scheme Filed with Stock Exchanges              Q2 FY25

Regulatory Approvals (SEBI, RBI, Exchanges) Expected by Q4 FY25 NCLT Process and Approval             Q4 FY25 – Q1 FY26 Blackout Period (including Record Date)        Q2 FY26 (40–45 days) Listing of Piramal Finance Ltd.    Targeted for Q2 FY26

Note: Timelines are indicative and subject to regulatory and statutory approvals.

Expected Benefits

• Removal of Holding Company Discount: Direct listing of the operating company could narrow the valuation gap
• Simplified Structure: Operational and reporting efficiencies post-merger
• Improved Market Perception: Clearer identity and focus for institutional and retail investors

 

 

Disclaimers

This blog has been prepared by Amaltas Asset Management LLP, a SEBI-registered Portfolio Management Service (PMS) with registration number INP00009126. It is intended solely for private distribution to the recipient and should not be reproduced, redistributed, or shared without prior written consent of Amaltas Asset Management LLP. The views and information contained in this document are for informational purposes only and do not constitute investment advice or a recommendation to buy, sell, or hold any security or financial instrument. The material is based on information that is believed to be reliable but has not been independently verified. Amaltas Asset Management LLP does not represent or warrant the accuracy or completeness of any information contained herein.  This document is not an offer or solicitation for investment in any product or strategy managed or advised by Amaltas Asset Management LLP. Investors are advised to consult their financial advisors before taking any investment decisions. Amaltas Asset Management LLP, its employees, and clients may have exposure to the securities mentioned in this report. The firm may also undertake transactions contrary to the views expressed herein. Past performance is not indicative of future results. All investments are subject to market risks, including possible loss of capital.

SEBI Regulatory Disclosures

• This report has been prepared in compliance with SEBI (Portfolio Managers) Regulations, 2020 and other applicable laws.
• Amaltas Asset Management LLP has not received any compensation from the companies mentioned in this report in the last 12 months.