Why did the stock of Piramal Enterprises dip to its yearly low on Friday 27th May?

The flagship company of the Ajay Piramal group, Piramal Enterprises, touched a yearly low of Rs1,679 crore on Friday and ended nearly 10% lower on the bourses. A sharp drop in profits was largely responsible for the crash in the stock price. For the March 2022 quarter, the financial services business of Piramal Enterprises reported net loss of Rs321 crore on account of additional provisioning and interest reversals to the tune of Rs1,037 crore. This totally dented the performance and dipped the company into losses.

These provisions pertained to select wholesale non-RE accounts that moved to Stage-2, requiring such provisions to be made. The stock has now corrected about 44% from the peak levels of Rs3,013 touched in October last year when the market was close to its peak levels. PEL is broadly into financial services and pharma. On a consolidated basis, the net profit was a turnaround to Rs150 crore profit . Revenues were up 22% at Rs4,163 crore.

The pharma business did a lot better. Sales were up 11% led by a 55% growth in the India consumer products business and 9% growth in pharma sales. Health related launches in the consumer products business gave them the edge. However, brokers have been cutting the EBITDA estimates for the financial services business and also the pharma business of PEL and that is what has driven the valuations of the stock lower.

However, PEL is a lot more confident about its foray into retail financial services, especially after the loans franchise of DHFL that it bought over. Its retail foray would be led by mortgages and complemented by shorter tenure loans originated through digital partnerships.