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Edited Transcript of PEL.NSE earnings conference call or presentation 22-Oct-19 12:30pm GMT

Q2 2020 Piramal Enterprises Ltd Earnings Call

Mumbai Oct 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Piramal Enterprises Ltd earnings conference call or presentation Tuesday, October 22, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ajay Gopikisan Piramal

Piramal Enterprises Limited - Chairman

* Hitesh Dhaddha

Piramal Enterprises Limited - Chief IR Officer

* Khushru Burjor Jijina

Piramal Fund Management Pvt. Ltd. - Managing Partner and MD

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Conference Call Participants

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* Aditya Jain

Citigroup Inc, Research Division - Assistant VP & Senior Research Associate

* Alpesh Mehta

Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst

* Ashi Anand

Allegro Advisors Private Limited - Director

* Kunal Shah

Edelweiss Securities Ltd., Research Division - Associate Director

* Lalaram Singh

Vibrant Securities Private Limited, Research Division - Research Analyst

* Manish Ostwal

Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst

* Mitul Mehta;Lucky Investment Managers;Analyst

* Nischint Chawathe

Kotak Securities (Institutional Equities) - Senior Analyst

* Rajeev Agrawal;DoorDarshi Advisors;Founder and Managing Partner

* Rohith Potti; Marshmallow Capital;Analyst

* Subrata Sarkar;Mount Intra Finance;Analyst

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Vivek Joshi;Bandarpuj Capital;Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day and welcome to Piramal Enterprises Limited Q2 and H1 FY '20 Conference Call. (Operator Instructions) 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.

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Hitesh Dhaddha, Piramal Enterprises Limited - Chief IR Officer [2]

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Good evening, everyone. I'm pleased to welcome you all to this conference call to discuss our Q2 and H1 FY 2020 results. Our results

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Piramal; Mr. Vijay Shah, Executive Director; Nandini Piramal, Executive Director of PEL; Mr. Khushru Jijina, Managing Director of Financial Services business; and Vivek Valsaraj, CFO of the company.

With that, I would like to hand it over to our Chairman and would request him to share his initial thoughts. Over to you, sir.

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [3]

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My best wishes for the Diwali season now to all of you. Let me now share with you the numbers of -- and the performance for the first 6 months of the current year.

During the first 6 months, our revenues grew by 18% to INR 7,110 crores, and the profit before tax and exceptional items grew by 25% to INR 1,338 crores. The net profit is 19% above the same period last year at INR 1,029 crores. For the second quarter this year, revenue grew by 15% compared to the same quarter last year and is now at INR 3,604 crores. And our profit before tax and exceptional items grew by 29% to INR 733 crores, and net profit grew by 18% to INR 569 crores.

I'm very happy to report that if you look at our 5-year performance, the revenue CAGR for the 5 years has been 24% and net profit during this period has grown on a compounded annual growth rate of 60%.

Just a few comments on the macro environment. The business activity in India has been facing a slowdown. In fact, the June '19 quarter was one of the weakest in the last 6 years, with GDP growth rate slipping to nearly 5%. Liquidity tightening in the NBFC sector has accentuated this impact. Real estate and the MSME sectors, which are crucial to GDP growth and employment, continue to be impacted by shrinkage in credit flow. As per the RBI data, total credit flow to the commercial sector has fallen by INR 2.25 lakh crores between April and mid-September this year compared to an increase of INR 2.6 lakh crores for the same period last year. The new credit provided by housing finance companies declined by INR 6,000 crores in the first quarter of the current year compared to a growth of INR 52,000 crores in the same period last year. For the MSMEs, the credit grew only by 12% year-on-year as of June 2019 versus 23% last year.

While banks have more than sufficient liquidity, there's still a lack of confidence to fund NBFCs who are lenders to these important sectors. We've said this before that in such times, it's only few NBFCs and housing finance companies which have a high capitalization, strong parentage, best-in-class governance, robust risk management and processes and deep sectoral understanding would survive going forward, and we can already see this consolidation taking place.

Before I talk about performance of the Financial Services business in detail, I'd like to share with you some headline numbers with respect to the liquidity of the Financial Services business because this today is perhaps the most important thing.

In the last 1 year, our Financial Services business received total inflows of INR 45,000 crores, which includes fresh borrowings, repayments and prepayments, and these inflows are equivalent to 85% of our loan book. During this period, we've raised INR 24,000 crores of long-term funds, which also reflects the confidence of lenders on the quality of loan book and the underlying assets.

In addition, we received INR 19,000 crores, which is 35% of our loan book in the form of repayments, prepayments from borrowers in the last 1 year, reflecting the high quality of our borrowers and their consistent trend in the sale.

What is reassuring for us is that of these repayments, prepayments, nearly INR 7,700 crores was through refinancing from banks, mutual funds and other institutions without any discount, reflecting our client selection and quality of underwriting.

During this period, we dispersed INR 19,000 crores in the last 1 year to meet existing commitments in wholesale lending and as well as growing our retail housing finance business. Debt obligations of INR 30,000 crores in the past 1 year have been met, and they have been all paid on the due date. These numbers reflect the core strength of our business.

What have we learned from the last 14 months? While our strong fundamentals enabled us to navigate through the liquidity tightening period, some of the learnings are that we have to be more conservative in our liabilities and see that the long-term funds -- we have more long-term funds. We've also realized that building a diversified and granular loan book is important, and we have decided to bring down our single borrower exposures.

During this period, we have taken several steps to further strengthen our assets and liabilities. On the liabilities side, we did have a larger proportion of short-term borrowings. We are continuing to improve our borrowing mix by shifting towards long-term funds. During the past year, we have raised long-term debt of INR 24,000 crores. Bank borrowings now constitute 69% of overall borrowings, significantly higher than the 49% we had in September 2018. Although we did resort to some short-term borrowing during the last few quarters, we have reduced our exposure to CPs from INR 18,000 crores, which was at the end of September, to INR 1,480 crores at end of September 2019. More importantly, CPs from mutual funds have reduced to nearly INR 615 crores compared to INR 15,600 crores a year ago. And by the end of November, we will have no CPs from any mutual funds.

During this period, because we have focused on improving our liquidity, there has been some increase in borrowing costs and we've seen a temporary rise. The average short-term fund was 11% during FY '20 first half. We expect that borrowing costs will normalize in the next year. We are already seeing these going up and believe that they will continue to go up further as the competition is down significantly in the spaces we operate in. As said in the past, we remain confident of fulfilling all our short-term and long-term repayment obligations.

Coming to the asset side, our loan book remained flat at INR 53,000 crores at the end of September. This has been a deliberate strategy as we believe that in an uncertain turbulent market, it is important that we focus on liquidity and focus on seeing that current borrowers at whom we have funded their projects, remain on track rather than going for new businesses. Even in this challenging time, our gross NPA ratios remain below 1%, which they have done for the last 14 quarters. We have diversified our loan book. The wholesale residential real estate loans, now at INR 25,600 crores, constitute 48% of the loan book compared to 79% in March 2015. Our wholesale commercial real estate loans at INR 11,400 crores now account for 22% of the loan book. The corporate lending remains unchanged at 18% and stands at INR 9,600 crores.

Our housing finance loan book is today at INR 6,400 crores and accounts for 12% of the overall loan book compared to only 4% a year ago. We have disbursed INR 5,000 crores towards retail in the last 1 year. We've also taken steps to reduce the single borrower exposures, and large exposures have been reduced either through refinancing and co-origination. The top 10 exposures now account for 30% of our loan book, and we plan to reduce this to below 20% by the end of the current fiscal year.

The environment for NBFCs is that there is significant consolidation taking place in the industry, and this gives us several substantial and profitable growth opportunities because we are well capitalized. As I mentioned already, we are seeing an improvement in yields, especially in the wholesale lending business as we have been able to largely pass on the increase in cost of borrowings to our customers.

However, given the uncertain business environment, we are currently focused on maintaining more liquidity and not chasing growth until the environment normalizes. Our belief is that by the end of the current fiscal year, this should happen.

It's worth just taking a note of some of the fundamental strengths of our business. The core strength that we have is, first of all, there is a credibility of our group. We have perhaps one of the highest promoter shareholdings of an NBFC, which is nearly 50% today. Our balance sheet strength is also strong. We are amongst the most well capitalized financial institutions in India. Our leverage today -- our debt-equity ratio is 2.9x compared to 4.4x a year ago. The last 12 months have also shown that the client selection, quality of underwriting and our robust internal controls have resulted in a high -- healthy asset quality with our gross NPA amongst the lowest in the industry for the last 14 quarters. We have been conservative in provisioning and our provision coverage today is nearly twice that and amongst the highest in the industry.

I have great satisfaction that we -- I have a strong Board of Directors, whose emphasis is of high governance. The robust risk management growth performance, with risk and legal teams reporting directly to the Board since inception, is now actually being described by RBI for other NBFCs awards as well.

With the strengthening of our Financial Services business over the last 1 year, we are well positioned to take advantage of the upcoming organic and inorganic growth opportunities.

In my conversations with investors, I have perceived that investors often miss the point that PEL is a multi-sector conglomerate with a substantial stake in the Pharma business, which has been consistently delivering strong performance year after year. And hence, I would like to discuss some of the highlights of our Pharma business.

In the second quarter this year, Pharma business revenues grew by 19% to INR 1,316 crores versus INR 1,109 crores last year. EBITDA margins for the Global Pharma business, which accounts for 91% of our Pharma revenues, were now -- are now at 24%, consistently going up from 20% in the last year. Our EBITDA CAGR for the last 3 years for Pharma is 31%, delivering an absolute EBITDA of INR 533 crores for the first half of the current year.

Despite regulatory pressures and price erosion due to buyer consolidation across the sector, we've delivered a consistent performance due to our uncompromising focus on quality and compliance, our differentiated business model of specialized generic products and capabilities across development and manufacturing services around the world.

With over 90% of our revenues derived from niche businesses of specialty products and CDMO, our Pharma business is not subject to pricing pressures. During the first half, we successfully cleared 3 U.S. FDA inspections, 8 other regulatory inspections and 75 customer audits. Our strong track record on compliance and quality has ensured that we have not raised any production shortages and loss of sales due to noncompliance. Due to these reasons, the business has delivered a 16% revenue CAGR for the last 9 years.

Our Global Pharma Services business has capabilities across development and manufacture and offer unique integrated solutions across the drug life cycle, which offers us a huge growth potential through becoming growth partners with our clients. With the addition of 30 new clients to the Global Pharma Services business in the first half, the order book sustained a strong advancement seen last year, when we have added 50 new clients.

Through the Global Pharma products, we've set up a strong sales and distribution channel, which is similar to what we had done when we had the domestic formulations business in India, where we have created a platform, which we could then add on new products. We've invested in our Global Pharma products into a strong distribution network across North America, Europe and other major geographies. We will continue to add more products organically and inorganically on this platform to boost our growth in future.

In our specialty products business, we made 3 new launches in key markets in the second quarter, taking the total number of launches in the first half to 7. We expect the business to continue to deliver strong growth. With the improving EBITDA margin profile on consistently growing revenues, we believe the absolute EBITDA for the Global Pharma business will be significantly higher in coming years, translating most of this increase into the bottom line profitability of the company.

In the Indian Consumer Products, we also saw a strong year-on-year pipeline growth of 39% with revenues of INR 112 crores, and the first half revenues have grown by 53% to INR 222 crores. Again here, we have created an India-wide distribution network and are growing this business by adding products organically and through acquisitions.

I'll now move to the Healthcare Insight & Analytics, the DRG business, where the first half revenues, we have grown by 14% for -- to be at INR 652 crores. EBITDA margin grew to 24% during the quarter on account of streamlining the operating processes, and our India-based employees now account for 35% of our total employees. Our strategy for future growth in DRG is to focus on cutting-edge technology and to provide unparalleled client value by offering integrated solutions, which grow our presence in the market other than the U.S.

In conclusion, in the past 1 year, we have more than delivered on our commitments made in the last few quarters. We have significantly brought down our CP exposure to near 0 by November end. We improved the borrowing mix by raising long-term funds, further diversified our loan book by making it more granular, reducing single borrower exposure and increasing the share of retail lending. As we expect uncertainty to persist for the next 6 months, our focus is to continue to preserve more liquidity than focusing on growth.

The Pharma and Healthcare Insight businesses continue to consistently deliver strong performance quarter-after-quarter, acting as a natural hedge and bringing a higher stability in the company's performance, even in the most volatile environment.

We will continue to build on the progress we made in the last 1 year and capitalize on both organic and inorganic opportunities. We had also made a commitment in the last quarter that we would be raising additional equity or bringing in equity into the business of about INR 8,000 crores. And I'm glad to mention that we have made sufficient progress in that and now have -- have now asked for a Board meeting to be held this Friday to deliberate and decide about the instruments of new equity issuance which will -- the size will be in the region of $750 million and to decide what form the equity will be and the timing of the issuance. Obviously, this is subject to regulatory and other clearances. We will give more details on the issuance post the approval of the Board of Directors meeting on the 25th.

During this period, we had promised -- we had committed to raise equity and we are doing it. And in the interim, we've had some rise in the cost of funds, as I said, where our cost of funds is to date at 11%. But I believe that with the raise in equity, we should come back to normal levels in cost.

With the client equity raise that we are going ahead with, we remain extremely well positioned to grow organically and inorganically across the sectors we operate in. We have a detailed and granular plan for this growth strategy and would like to share the same in the near future by scheduling an investors' meet sometime in mid-November, soon after Diwali.

With this, I once again wish you the best wishes for Diwali and New Year. Thank you.

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Hitesh Dhaddha, Piramal Enterprises Limited - Chief IR Officer [4]

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Operator, we can get questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Manish Ostwal from Nirmal Bang.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [2]

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So my question on your capital raise, we did sell Shriram Transport investment. While current leverage position is quite comfortable, so I mean, at the current valuation, why we are raising when the balance sheet is so much comfortable?

And secondly, when we are seeing inorganic growth opportunities, so which are the segments we are looking at in terms of inorganic opportunities?

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Unidentified Company Representative, [3]

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So we believe -- let's look at the whole scenario today. Our belief is that well-capitalized companies will do better in the future. Consolidation is taking place in this industry. That means that there is -- there will be fewer players as far as the NBFC sector is concerned. We also expect that during the next few months, there's going to be more and more turbulence. Every day, you see some bad news coming in the NBFC sector. Therefore, those companies, those NBFCs which have capital today are going to remain much stronger in the future. So we are not playing here for 6 months, 12 months. We are taking the long-term view. And that's why my belief is that it's better to have equity today because the returns on the equity that you will get will be much higher today than what you can -- which you will get in the future, that's one.

Second thing is that, therefore, we believe that we are quite adequate. Today, it's not so much of the debt-equity ratio, more important is to have more liquidity in the system. So that any shocks that come into the system, you should be in a position to bear it. That's why we've raised equity.

In organic sector, today, there are many opportunities that are coming up. As I've said before and this we have demonstrated over the past across different businesses, we will only acquire or look at those areas, which have a strategic fit with us and where there is value. So even if it was to be entering into, let's say, Financial Services, we would look at the quality of the company, the quality of the book, the culture of the people, and if they all said and if it makes economic sense, we will do it.

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [4]

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Sure, sir. The second question is pertaining to the 18 deals, which are under stress. So what is the current size of the stress in our book? And secondly, what is the resolution update on the same?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [5]

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This is Khushru Jijina. So to answer your question, out of the 18 deals, we have actually resolved all of them, and 4 deals are work in progress, which I think in the next 30 days will also be resolved. So I want to confirm that. I'm happy to note that the size of the 4 deals cumulatively is actually less than INR 600 crores only now. So that's the first -- the answer to your first question. What was your second question?

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Manish Ostwal, Nirmal Bang Securities Pvt. Ltd., Research Division - Senior Research Analyst [6]

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Second question is, what is the -- I mean, whether that the number of deals has increased or it's remained the same or what is the status?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [7]

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No actually, it has decreased.

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Operator [8]

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The next question is from the line of Sundeep Allamraju from L&T Mutual Fund. It seems there's no response from the line, sir.

We'll move to the next question. That is from the line of Subrata Sarkar from Mount Intra Finance.

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Subrata Sarkar;Mount Intra Finance;Analyst, [9]

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Sir, just one question. If you can give the breakup of yield on particular businesses, like what is the yield on commercial real estate, what is the yield on residential real estate, what is the yield on like our housing loan business? That way, if you can give the breakup?

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Unidentified Company Representative, [10]

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Yes, let me give you the answers. So let's break it up a little further. In the real estate, if you look at structured deals, the yields are 16% plus, northward of 16%. If you look at our book on construction finance, it's in the range of 14%, 14.5%. Then if you look at -- and both for resi and commercial is the same. Then for the CFG portfolio, which is the non-real estate, the yield again for structured deals are north of 16%, so in the range of 16% to 18%, and 13.5% to 14% for senior debt. As far as the yield for housing finance goes, it's in the region of 9%.

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Subrata Sarkar;Mount Intra Finance;Analyst, [11]

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Sir, just a follow-up question on that. Like our cost of fund is around 11%, and housing finance, yield is around 9%. So any thought on that, sir? While you are trying to -- like what is your thought on that, sir? Sir, there is actually maybe a negative yield currently. So what is your thought on that?

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Unidentified Company Representative, [12]

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Not really. Let me explain to you. At the end of the day, today, the treasury is giving risk-based pricing to all the businesses. So for example, a structured debt would get higher costing where they do the deal, whereas the least risky portfolio today is the housing finance, so their cost of funds actually allocated by treasury today is 8.5%. So it's not that the cost of funds are higher than the yields, because at the end of the day, you have to allocate risk-based pricing to the businesses.

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Subrata Sarkar;Mount Intra Finance;Analyst, [13]

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Yes. I understand, sir. From a risk-based objective, I understand that since housing finance is the lowest cost, so obviously, we have that [happy in a sense]. But, sir, like in simple terms, are we making any spread on housing finance business, sir?

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Unidentified Company Representative, [14]

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You have to -- let me explain. Housing finance, we are 2-year old. At the end of the day, you have to look at housing finance in a 5- to 7-year horizon. And why are we doing housing finance? It's because there are a lot of advantages. It gives you granularity of the book. As we move towards the 20%, 30% of our book being more granular, the entire cost of funds of the entire book, including wholesale comes down, which more than pays for the low yield of housing finance. So that's the way you have to look at housing finance.

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Operator [15]

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The next question is from the line of [Shivam Agarwal from Compounding Capital].

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Unidentified Analyst, [16]

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Hello.

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Unidentified Company Representative, [17]

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Yes, go ahead with your question?

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Unidentified Analyst, [18]

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This is to ask you when the promoters have such a strong understanding of the real estate business, then why are we keen on reducing our exposure to such business when it is yielding us such good deals?

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Unidentified Company Representative, [19]

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Sometimes I really wonder what investors want. If we are too much in real estate, people say you're concentrated in one space. We also understand that you have to have a balance. We understand real estate. We see the yields are goods. But I think people want granularity, they want diversification and that's the way to go. So we are going to go in that way now. That's the strategy going forward.

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Unidentified Analyst, [20]

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I understand. Sir, one more question. Like you said, we will focus on consumer lending also, so are we going in consumer lending, the kind of credit cards or it will be just the housing finance business?

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Unidentified Company Representative, [21]

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So it will be housing finance. It won't be credit cards. But in the future, we will also do other consumer lending, which will not be via credit cards, but another way.

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Operator [22]

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The next question is from the line of Alpesh Mehta from Motilal Oswal.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [23]

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Congrats for the decent set of numbers. So first question is on the cost of fund. I believe you have reported 11% for the first half or is it for the second quarter?

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Unidentified Company Representative, [24]

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It's for the first half.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [25]

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That means for the second quarter, our cost of fund is around 11.8%. Is that because we have reported 10.2% for the first quarter. So just...

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Unidentified Company Representative, [26]

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Right, whatever, it's a derivation basically that you can do.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [27]

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Okay. Second question is on the Pharma. When I look at the segmental results, Pharma plus IT both put together is around INR 15,000 crores of total assets. And we have reported the net worth of around INR 4,800 crores allocated to these businesses. So the debt level of both these businesses are around INR 10,200 crores. So any breakup on that front would be very useful.

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Unidentified Company Representative, [28]

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So the overall debt in Pharma is about INR 4,100 crores, and the balance is in the Healthcare Insight and at corporate level. So there is some unallocated debt also which is there, which has been -- I mean, if you look at the footnote on the presentation, you'll find that.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [29]

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Yes. Yes. Unallocated number is there.

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Unidentified Company Representative, [30]

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Yes. Yes. So it might be looking higher, but it's not actually in that sense.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [31]

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Okay. And of the Shriram Transport stake sale, I believe we received around INR 2,300 crores, whereas we allocated around INR 1,700 crores to FS business in this quarter. Any reason for not full allocation or any other business that...

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Unidentified Company Representative, [32]

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Well, essentially, the debt-equity ratio, even when you allocate at INR 1,700 crores is below 3 in the Financial Services business. So that's more than enough.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [33]

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Okay. But -- so we had certain debt-to-equity ratio in mind while allocating capital to the FS business. So is that the way to look at it?

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Unidentified Company Representative, [34]

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No, that's not the way, but we felt that it is prudent today. In fact, when we raise equity and now the additional equity, the debt-to-equity in Financial Services today will go down further because, yes, it's come down to below 2 now after the fund raise. And then it will slowly go up as we see the environment changing, we will start growing the book.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [35]

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Okay. So 2 related questions to this. If we have a plan of raising around INR 8,000 crores to INR 10,000 crores of equity in this year, obviously, part of that would be through Shriram Group. But any ballpark number how much would be allocated towards the FS business from this?

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Unidentified Company Representative, [36]

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I think we'll decide -- now, over time, we'll decide. We'll let you know. Let's see the opportunity after. Please remember it's fungible. It all comes into the company. We will move it one way or the other. Today, as far as lenders are concerned at the 2.8 debt equity, Financial Services is adequately -- there's enough leverage possible. We'll look at opportunities and then allocate the capital. It is -- at the parent, it is fungible.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [37]

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Okay. And 2 more questions. So one would -- any guidance on the growth part now, considering the environment? Because we have moved down from 50% plus to almost a flat growth now. So anything...

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [38]

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In March 2020, I do not expect any significant growth in the book. We are keeping it flat, as I said. I think our focus is on liquidity. Beyond that, we expect that as consolidation takes place, we will talk of growth. Details, we will share with you in the Investor Day. I don't think we should measure performance for 6 months now. More important is to strengthen the balance sheet, to strengthen the company and then the growth will be enough opportunities.

On the other hand, I want to just come back to the Pharma sector. We expect that the growth rate on the top line will be about 15% growth on the top line, and the bottom line, the margins which we have of 24%, which itself is a 20% growth over last year, will continue to remain. I expect that the DRG performance really grow by about 10% on the top line and significantly higher on the bottom line.

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Unidentified Company Representative, [39]

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Alpesh, just to add on what Chairman also mentioned is that when we speak to investors, frankly, no one is worried about growth because everyone realizes that in this environment, competition is going down quite a bit in the sectors where we are operating. So there are, frankly, no questions on growth because people know there is enough opportunity to grow. And once the equity comes in, I think then the growth is sort of obvious to happen.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [40]

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Okay. And one of the comments that Mr. Piramal mentioned that the top 10 exposures are going to come down from 30% to 20%. So if I look at your FY '19 book, the top 10 exposures were around INR 18,000 crores or so. And could this book -- the number is likely to be around INR 13,000 crores, INR 14,000 crores. So how -- since obviously, it's a great thing that you guys are able to reduce the exposures. But if you can elaborate further about the strategies that you guys have adopted in terms of reducing those exposures?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [41]

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Yes. So Khushru Jijina here. So in fact, just to tell you, from INR 18,000 crores as on date, as we speak right now, it's already down to INR 14,500 crores. And we will bring it down to around INR 11,000 crores to INR 12,000 crores in December. So the number of INR 14,000 crores is already there. We have already done it in this -- from June to October. And in March, in fact, we'll be somewhere around INR 10,000 crores.

How we are doing it? It's through mix of cash flows, which is there from good projects. So I will dwell upon this also for a minute. In this whole journey of the loans which we have given, what you should also realize that today, our portfolios have become mature. So what I mean is that today, more than 40% of our portfolio in real estate is near completed, completed projects. So obviously the cash is coming faster. And only now less than 20% is in the early stage. And also, because we haven't done any deals, our moratorium -- the deals and the moratorium has also come now to only 18%. All this is helping us. And of course, the quality of the book, which is helping us to get refinancing because we are consciously wanting to bring the single borrower down because that was one of the things we spoke 4 quarters ago in September '18. And that's what we are doing. So our idea is that by March, we'll bring all our accounts below 15% of our net worth, and also the top 10 will be below 20% of the total loan book. This is the path which we're taking.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [42]

--------------------------------------------------------------------------------

Okay. And the moratorium would be what, around 18 to 24 months on our loan book?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [43]

--------------------------------------------------------------------------------

Yes, 19 months.

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Alpesh Mehta, Motilal Oswal Securities Limited, Research Division - Deputy Head of Research of BFSI & Banking Analyst [44]

--------------------------------------------------------------------------------

Okay. Okay. And lastly, on the new tax rate, have we moved to the new tax rate or any plans to move?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [45]

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We are actually still evaluating both the advantages and what are the consequences of this. And I think we will -- we are not in a hurry. We will let you know by -- in the next few weeks.

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Operator [46]

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The next question is from the line of Aditya Jain from Citigroup.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [47]

--------------------------------------------------------------------------------

The securitization deal of wholesale loans, which was concluded by you recently, if you could give some color on it. So who were the investors? What sort of credit enhancement we did as part of that deal?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [48]

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Yes. So this was the first deal in India, which was done for wholesale real assets. So basically, it was a mix of both real estate wholesale assets and the non-real estate assets. The pool loan rated AA+ by CRISIL. The total pool which we had given was INR 3,300 crores with a 20% cash rate enhancement. And so that we raised funds in the region of INR 2,400 there and 10.5% coupon. In fact, you'll be happy to know that 10% of that pool is already in prepaid and it was invested by a whole lot of investors, yes.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [49]

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And the rating that we got from CRISIL...

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [50]

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It was AA+. The first AA+. It's the first time a wholesale, especially a real estate pool was rated AA+.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [51]

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So just to confirm, you mentioned INR 3,300 crores was the total size and you raised INR 2,600 crores?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [52]

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INR 2,372.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [53]

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INR 2,372. And at what rate?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [54]

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10.5% coupon.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [55]

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10.5%. So clearly more of these, if possible, you would like to do?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [56]

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Yes. We will evaluate in our business model at any given point of time if a securitization make because at the end of the day, you need to churn your book also. So this securitization can become a part of your business going forward.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [57]

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All right. And could you give us an update on the Lodha exposure. Is it first planned to be reduced to around 26 billion by September? How are things looking on that?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [58]

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Yes. So the -- as you will have read in the papers that the Lodha has done very good sales in the last 6 months. And in fact, we have started the Diwali with the bank with INR 320 crores in the first 7 days. So this was a conscious strategy which was adopted by both Lodha and us, where in this market because we're near to completion, we asked for a 1 quarter exception that he does not prepay us because, anyway, he's prepaid 1 year down the line. So we did not insist on prepayment and used the funds to accelerate the construction, and this is what's showing now in the sales number.

So let me tell you, in the next 3 to 4 months, you will see a reduction of around INR 450 crores to INR 500 crores in our exposure. So while our exposure right now is at INR 3,100, you will see now, going forward, a reduction of INR 400 crores to INR 450 crores coming down. But it did not reduce because as an exception, we thought it makes more business sense for him to construct faster, and that's actually reflecting in the sales number now.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [59]

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Got it. And then in Slide 22, in the borrowing mix on -- by both instrument and investor type, there is an others part. So what exactly falls into that segment?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [60]

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Just give me 1 minute.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [61]

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Sure.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [62]

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Other category will all be other IC names, yes.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [63]

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Sorry?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [64]

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IC list on corporates.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [65]

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Got it. And on the investor side, so that would be corporate and...

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [66]

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Yes. Yes, corporates.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [67]

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The 9% of borrowing made by investors is corporates?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [68]

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Yes.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [69]

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Okay. And just one on the amount, which is in the principal moratorium, so the -- you mentioned 18%, 19% in this quarter. So the amount was much higher in the past quarter, right?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [70]

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Yes, 35%.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [71]

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Okay. So is this already a volatile number? Or the move should sustain?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [72]

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No, the move is going down because logically, if you're doing lesser new deals and your older deals are -- as I explained just now on the call, that your older deals are becoming much more mature, the -- as I mentioned to you that more than 40% of my book now is completed and almost completed projects, so definitely, the cash is being drawn. In fact, even deals which were under moratorium have started prepaying us. And just to give you a number, in fact less than INR 4,000 crores is only in moratorium, even if you look at the number -- less than INR 5,000 crores, sorry. If you even look at the number, it's now insignificant compared to the overall book size now.

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Unidentified Company Representative, [73]

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So there has also been refinancing, which we talked about of the deal. So -- and the book sort of remained consistent with the retail mix going up. So there are a couple of reasons for what you're asking.

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Aditya Jain, Citigroup Inc, Research Division - Assistant VP & Senior Research Associate [74]

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Got it. And it's good to see. Just lastly, on the securitization deal, was there any investor who took more than, say, [30%] of the amount?

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Unidentified Company Representative, [75]

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So we don't want to disclose the breakup. As Mr. Jijina mentioned, there has been mix of investors, and that is what we would like to say.

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Operator [76]

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The next question is from the line of Nischint Chawathe from Kotak Securities.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [77]

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Just taking up from the same question, on Slide 22 of the presentation. The 6% securitization, so that essentially refers to this transaction you did?

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Unidentified Company Representative, [78]

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Yes, that is all transactional-related.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [79]

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Sure. And where you are today reporting a loan book of around INR 53,000 crores, that is after the transaction? Or does it take the gross book?

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Unidentified Company Representative, [80]

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No, this is the gross book.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [81]

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Okay. So the transaction that you have sold would -- I mean technically from a balance sheet point of view, I should be subtracting this from INR 53,000 crores?

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Unidentified Company Representative, [82]

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Probably. The new accounting standard's coming. And whenever we are really providing credit enhancement, there, the book does not see the impact as the capital on the book, which we have securitized continues to be revamped. Accordingly, we have shown the AUM along with the securitized book. And the capital is also accordingly allocated to that book.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [83]

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On the provisioning part now, if I really look at the provisioning ratios, even this has gone down from around 1.85% to 1.8% between the June and the September quarter. And your book has gone down as well. So mathematically, does it mean that you have done a provision write-back in the quarter?

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Unidentified Company Representative, [84]

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So provisioning will be done based on what kind of book you have. So if you see the retail mix has gone up and the book in terms of size has also changed. And so accordingly, the provision also changes because there are percentages applicable on every kind of nature of the part of the book.

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Nischint Chawathe, Kotak Securities (Institutional Equities) - Senior Analyst [85]

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No, no, fair point. I'm just saying that my math, I see that there was a net provision write-back over the last 2 quarters. I think that's fine, right?

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Unidentified Company Representative, [86]

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Yes. The rest is all math, Nish. I think -- I'm sure you can do that.

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Operator [87]

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The next question is from the line of Rohith Potti from Marshmallow Capital.

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Rohith Potti; Marshmallow Capital;Analyst, [88]

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I just want to confirm what Mr. Jijina said previously. It's 18% or 19% of the total loan book that is on the moratorium and principal list, more of a bullet repayment. Is that correct?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [89]

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Yes, that's right. That's right. But we are -- this is, I think, a residential real estate we are talking about.

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Rohith Potti; Marshmallow Capital;Analyst, [90]

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So the 18%, 19% of the residential real estate book and not the whole book?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [91]

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So if you look at the total book, it will be far less.

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Unidentified Company Representative, [92]

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Less than 10%.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [93]

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Yes, less than 10%. But that is not the right way to look at it. So we are giving you a number of 18% of the residential real estate book.

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Rohith Potti; Marshmallow Capital;Analyst, [94]

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Understood. The second question is that in -- you've, in very great detail, talked about reducing the top-end exposure that we have. By March 2020, you are expecting to bring it down substantially?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [95]

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Yes.

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Rohith Potti; Marshmallow Capital;Analyst, [96]

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But Chairman mentioned that our loan book will probably remain flat. So does this mean that we are seeing growth in certain other segments? And what are the things where we expect the growth to continue?

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Unidentified Company Representative, [97]

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So one is Chairman has not guided that book will remain flat or anything. What he is saying is that we will focus more on liquidity than growth. That doesn't mean we're guiding you anything on the growth part. Having said that, the mix continue to change. So yes, if that answers your question.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [98]

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I'll just add. I think there was a lot of questions. So just to add what Chairman said. I think what Chairman said, I just want to summarize that. What are we saying? We are saying that our paramount importance right now is the liquidity. That doesn't mean that we won't do it -- we won't be doing business. Somebody asked that you guys are so good in real estate, why are we getting out. We are not getting out. All we are saying is that we are changing the way we should do. We will have granularity, single-borrower exposure, we'll diversify it. That's all what we are saying.

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Unidentified Company Representative, [99]

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Core lending assets.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [100]

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Through core lending assets. And also we will grow our retail book. That's all what we are saying, so I just thought that I'd summarize it.

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Rohith Potti; Marshmallow Capital;Analyst, [101]

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Understood. And coming back to what Mr. Chairman -- or what Mr. Piramal mentioned about how our business is doing so well, it's giving us [historical] balance in the current environment. And basically, you're talking about the benefits of the conglomerate structure. Are those -- just curious, there has been a change in thought process at the top management level on the demerger? Do you think that a conglomerate structure is more effective as a deal, that's sort of a downside protection?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [102]

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There's not a rethink on that. I just said, in this environment, it makes sense for us to look at even Pharma. And that if you look at questions also, nobody looks at that but that gives you some stability. In the future, we will see how the environment is evolved. And I personally feel this turbulent environment is not going to last forever, which is -- I'd say it's a black swan event, once in I don't know how many years.

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Rohith Potti; Marshmallow Capital;Analyst, [103]

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Yes. So essentially, I was wondering -- I mean just a...

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [104]

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No, I don't think we should come to any conclusion today. Let's look at what happens. Let the storm reside, then we will talk.

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Rohith Potti; Marshmallow Capital;Analyst, [105]

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Okay. Sure, sir. And the next question is -- I've had is on our housing book -- the housing finance book. So we have grown quite well in that book over the last year. While it does give a brand value, I was wondering because it sort of takes liquidity from the system. Does this mean -- I mean, I wanted to understand your thoughts on balancing the lower cost of funds that the granularity on the book brings versus the liquidity that we -- mentioned that we are looking from realty. So could you speak a little more about that?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [106]

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We have to look at a long-term strategy for the business. In the long term, it's not only the wholesale, you need granularity to get into retail. Today, in any new business, when you start, you will see that the returns are lower. Over time, the returns become better because one is that your cost of actually getting the loan becomes lower because you can amortize it over a larger turnover. Secondly, this retail gives you a better understanding of the consumer, and you can extend loans to other products of the consumer. So please don't look at anything just in a 6-month, 12-month period. That's why you need a balance between wholesale and retail and consumer.

And also, the debt-to-equity ratio that you can -- the amount of debt you can raise on the retail is much higher than what you can raise on the wholesale. The risk-adjusted returns are also higher. So it's a mix that we are taking. It's -- so it's obvious to us that today the retail is much lower, the yield, so we should not do. But that's not the way to look at it, please look at it as a whole book.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [107]

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Let me add on this because this question on retail keeps on coming. I think one must -- besides what Mr. Piramal said, and I think we've also spoken about it before, I think the very important point, which is also missing which we should share, is in the last 2 years, we have put substantial investment in this retail. Today, I would like to confirm that more or less, those investments are done in terms of people, in terms of the location, in terms of branches, in terms of technology. So all that is now in place. The main thing is to bring the cost profile down, which has now started. And you will see the benefit of it, what we're getting now, in the next year to 2 years, et cetera. So we have a plan how to grow the ROE in retail now. So please don't look at the investment phase of 2 years of retail and come to a conclusion. That's -- I would like to leave the investors with this point.

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Rohith Potti; Marshmallow Capital;Analyst, [108]

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Understood. Fair enough. And the last question from me, if you could speak a little more on how you see the debt in the nonfinancial services business going forward? Because I believe, as you mentioned, the Global Pharma is doing very well, but we seem to have INR 4,000-odd crores whether they will get in the DRG businesses right. So is there a plan to bring it down? Or what is the plan there, basically?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [109]

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Yes. So the plan is to bring it down. One is I think they're seeing that the performance already improved. I think this year, we expect that performance compared to last year will be in terms of profitability, almost 40%, 50% higher than last year. We have also got enough equity in the system. We are, as I said, today, raising more than INR 5,000 crores even on this Friday when we meet subject to, of course, the Board approving it. So again, there is equity available in the system. So we are quite comfortable even as a company on the total. Debt/equity ratio is actually less than 2 in the whole company, including Financial Services, which is such a large part. So I think there is not much concern. These are all allocations that we can make, sometimes internally, about how much debt and equity to put. Besides, please remember that we also have the whole Shriram asset, which is available, which we have publicly said we will monetize over the year.

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Unidentified Company Representative, [110]

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All right. Just to add on what Chairman mentioned here, that as we continue to grow on the same trajectory, what we've been growing 15%, 16% year after year. And with these kind of margins, at the higher growth rate -- the higher revenue numbers, the EBITDA margins are certainly going to be quite good. And the fixed costs continue to remain the same. And depreciation, the depreciation on and on keep reducing. So the incremental profitability, that will come at a higher revenue level, will keep helping us in deleveraging that debt. So you should look at from a long-term perspective and not just today.

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [111]

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Actually, in Pharma, the debt is only 3.5x EBITDA, which is a very reasonable debt.

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Rohith Potti; Marshmallow Capital;Analyst, [112]

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Yes, sure. I just wondered if it's going to be downwards or if we plan to keep it as part of our capital structure, that's it. That's it from me.

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Operator [113]

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The next question is from the line of Kunal Shah from Edelweiss.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [114]

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Congratulations, good set of numbers. So firstly, in terms of -- I think you have highlighted in terms of the 18 deals which were there, and I think most of them are near to the resolution or have got resolved. But this 18 has been the number which has been there 2 quarters back. But doing the stress test and what has happened in the real estate environment, and as you've clearly highlighted 18%, 19% of RE book is already under moratorium, are we seeing more falling into this stress pool? Or is there any change in this overall stress pool in this quarter?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [115]

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I think -- first of all, I think -- let me rephrase. I think -- let's take a step back. When this whole -- may have happened 1 year ago, what we did was and we shared with you, we stress test all our deals, not necessarily that they were in bad shape. Let me again repeat and I think it's worth taking the time off, we stress test all our deals on 4 parameters, if you recollect. One was that what happens if the sales price goes down by 20%; what happens if the sales velocity goes down; what happens if the construction slows down; et cetera, et cetera. And then we had come on a number of 18 deals which require resolution. It was not stressed asset. Let me again repeat. Out of the 18 deals, we have resolved, means whatever action needed to be taken whether to bring down the prices and sell and get more cash flow in, the additional security of land to be monetized, so that the equity -- additional equity comes into the project or change the developer, move the project to another level but all has been done. All of what remains out of that 18,000 -- 18 deals is the 4 deals, which are almost complete but not yet completed, as I said. And the value of these are less than INR 600 crores.

Now that is -- that was the exercise done a year ago. That doesn't mean that we are only looking at that. Last quarter, we shared with you -- with you all that with the sales deteriorating, we again looked at all our deals from the perspective of that -- how many deals, even if 30% of the other channel sales doesn't -- only 30% of the other channel sales now work out, what is the amount required by these projects? Again, we're looking at all the projects again. So we -- it's a fresh look. And we came to a number of INR 1,300 crores from the sanction of the construction panel limit of INR 6,000 crores. So at that point, we continue to disburse. And that's why you see our project today, as we speak, which I shared with you today are nearing completing and concluding. That's the whole trajectory.

In real estate, you have to be ahead of the curve. You have to ensure that the project gets completed, so that the sales are faster. Luckily for us, almost 81% of our projects are in affordable and middle income. And that's why you'll see the sales velocity on an ongoing basis. I'm sure we can share with you far more granulation. Right from demonetization deal still today, month on month on month, we are collecting anywhere between INR 700 crores to INR 800 crores from our project and around INR 800 crores to INR 1,000 crores of sales even in the months of August and September.

So the point I'm making is that 18 deals, the exercise was a 1-year-old exercise, and we continue to keep on looking at our deals on various parameters as the environment keeps on changing. The bottom line is that you have to be ahead of the curve.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [116]

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Sure. And in terms of the incremental working capital requirement, so last time, you highlighted the INR 1,600-odd crores that would be needed, and some of it would have got disbursed. So now where does it stand? And maybe for some part of it, it was already disbursed. And that's a part of the disbursements, and now the requirement is lower. Then should we see the contraction in this wholesale book to be much higher than what we saw in this particular quarter?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [117]

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That's what we said. I think -- let me answer your contraction question. The contraction will come because of natural flows of money into the escrow because of the projects are getting mature and also refinance.

Coming to your other question, your first question. Last time, if you recollect, we said that in March '20, we would require INR 1,600 crores. Again, that was the number as on that date, it cannot be a static number. Today, we require INR 1,300 crores in July '20 now. So we keep on doing this all the time. You have to be ahead. You cannot -- it cannot be a static number.

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Kunal Shah, Edelweiss Securities Ltd., Research Division - Associate Director [118]

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Yes, yes. Sure. And in terms of the capital raising of, say, INR 1,000-odd crores which we are looking at. Maybe in terms of this utilization, so one is the leverage levels are quite low and definitely given the real estate exposure that -- towards the developer, we need that to be quite comfortable out there. And our CPs have, in fact, run down. Earlier, we were looking at in terms of maybe if it has to run down, whether we are sufficiently capitalized, both in terms of borrowing as well as equity. But now what would be the utilization for this? Is there any inorganic opportunity also which we are looking at in any of the product segments? Or it would be purely the expansion on the housing-related sectors?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [119]

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See we -- as we look at the -- we will share details of growth in -- as I said, in the Investor Day in middle of November. But I can say prima facie that they're in an environment where consolidation is taking place. There will be opportunities that will keep coming up. One is the opportunity to grow.

As you've correctly said, we don't need this capital to bring down debt. As it is, our debt-to-equity ratio is good. But we need this firepower to grow organically. And I believe that you will get good inorganic opportunities at a good value. That's the time we will take advantage. So this is the time to be ready with firepower, so that any opportunities are there, we can look at them and take advantage of it.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [120]

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Once again, please, sir, this is equity based only as a growth capital.

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Operator [121]

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The next question is from the line of Ashi Anand from Allegro Capital.

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Ashi Anand, Allegro Advisors Private Limited - Director [122]

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My question has been answered.

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Operator [123]

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The next question is from the line of Vivek Joshi from Bandarpuj Capital.

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Vivek Joshi;Bandarpuj Capital;Analyst, [124]

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Happy Diwali and congratulations for an excellent set of numbers in such tough times. I had just 2 quick questions. Given that we are raising INR 5,300 crores of equity, and we pay out dividends of around INR 550 crores, would it be advisable to not pay out the dividend and conserve it and limit the equity dilution?

And other is any quick update on the Phytocare demerger -- Phytocare merger?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [125]

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Okay. The Phytocare demerger is just waiting for NCLT to approve. And there is a long backlog in NCLT. So there's nothing to be done there, we just pass the order. I wish I can tell you when, but I'm told it will be sooner than later. That's all that I can say on that.

In equity, as I said before, it is important in today's environment to have a strong balance sheet. And equity is not something that you keep taking. It is taken once in a while, so that we strengthen ourselves because in the future, I see that those NBFCs which go through these tough times, there will be fewer of them. There will be many more growth opportunities to grow both in terms of organic as well as inorganic. And hence, I feel that this is the right time to raise equity.

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Vivek Joshi;Bandarpuj Capital;Analyst, [126]

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Oh, no, I completely buy the point. I'm just saying, wouldn't it be more prudent to not give out the dividend also to convert the capital?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [127]

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That's INR 500 crores. This is a 5,000, it's 10%, no? And there are many people who live on the dividend. I have to take into account every shareholder. You must be one of the large shareholders, so dividend is not important. But I have individual shareholders whose life depends on dividends, so I cannot take a view only of what is good for you or me. I have to take for all shareholders.

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Operator [128]

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The next question is from the line of Tushar Manudhane from Motilal Oswal Securities.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [129]

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Sir, just on the Pharma side, the first half year, a 24% EBITDA margin we did in first quarter FY 2022. So effectively, second quarter, 26% EBITDA. So any particular reason for lower EBITDA margin target of 25% for FY '21?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [130]

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See, Pharma, it's not that these are all contracts and all it depends on -- there are -- it's not the regular flow. Sometimes, there could be a better product mix, sometimes less. So therefore, on an average, you have to take. So don't, please, go on the basis of 1 quarter, what happened. Therefore, you see that trend. If you look at our trend over so many years, we have said our CAGR on top line and bottom line is going up. So please don't look at it quarter-by-quarter.

Actually, if you look at it, usually in the last quarter is where we get the highest sales. Even the first quarter of the current year, the sales were a little lower because the last quarter of last year was higher. So don't -- please don't look at it quarter-by-quarter. It will give you a misrepresentation. Take it over a year's period.

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Operator [131]

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The next question is from the line of [Abhishek Leta] from [Next Wealth Management Services].

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Unidentified Analyst, [132]

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Congrats for a steady set of numbers. And wishing you all a very happy Diwali. And coming to the point on the Pharma space, which you mentioned that reentry into domestic formulation. Is it something that you've already planned? Or how it this?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [133]

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No. Again, I think we -- as far as reentry into domestic pharma, we understand this is a space that we know. We've had a good track record in the past. But we have to get the right opportunity, and it has to be at the right valuation. So it's not that we have identified something. We are just saying that we are ready. We are looking at opportunities. But unless and until we get something which is of adequate quality and it is of right value, then we will do it.

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Unidentified Analyst, [134]

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Is it like -- can you also do it on an organic basis? Or probably you're only looking at an inorganic basis?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [135]

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No, I don't think we'll go organic. We are -- it will be inorganic if it was domestic-branded generic formulations. As far as the way we are playing in the domestic market for -- is the OTC space, where we are growing organically as well as through acquisitions.

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Unidentified Analyst, [136]

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Okay. And second probably is which quarter will probably win share? Probably it will be like the -- a demerging or probably like an IP or kind of a Pharma business for us?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [137]

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I think, as I said before, we will see in the midterm. It's not -- today, I can't give you a definite date.

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Unidentified Analyst, [138]

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Any ballpark like some highlights?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [139]

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No. You know the market. The whole environment in the country is so volatile. I want it to settle down. That's the time when we can talk about these things.

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Operator [140]

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The next question is from the line of Mitul Mehta from Lucky Investment Managers.

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Mitul Mehta;Lucky Investment Managers;Analyst, [141]

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Mr. Piramal and Mr. Khushru, sir, my question, your earlier answer to the loans given to the real estate developer, you did mention about Lodha. I have a specific question. If you could also give us some sense on what's happening on the Omkar realtor side? Because that also seems to be kind of a hanging empire. And so if you could just help us to understand because the project is not completed. We have given -- we have an exposure to that developer. And I believe some of the exposure has been converted into inventory on our books. So if you could just help me to understand the overall of it.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [142]

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I think -- let me again clarify for the nth time. I think we are doing it every quarter. We have no exposure to Omkar 1973, either by way of a loan or inventory, first.

Second, we -- our exposure to Omkar, let me spend some time on it, is basically on 2 projects, one which is run by L&T Realty and one which is run by Piramal Realty. The one which is run by Piramal Realty is the Dobhi Ghat project -- oh, yes, I'm sorry, the Mahalaxmi project, where we have given -- we had given INR 1,100 crores to Omkar, which is nothing, but today, receive the funding in parts. Because, in other words, today Omkar has completed its obligations in Mahalaxmi.

Today, I'm sure you are aware that a lot of sales have already taken place, 5 lakh 25 square feet has already been sold by Piramal. 40 -- by Piramal Realty. And 40% of the proceeds will automatically come into the Omkar account, which will be swept by us, 100%. So Omkar has no role to play now there at all.

So in all practical purposes, it is a ritual funding now. If you really look at it, in practical purposes, ritual funding of INR 1,100 crores against the performance of Piramal Realty, number one.

Number two, we have loan to Omkar, in the same way you can call it ritual funding against the Parel project of L&T Crescent Bay. Again, there, if you look at it, our exposure results are somewhere a shade lower than INR 400 crores, where today, the sole receivables, which will now come into the escrow account, which is 100% swept by us, is more than INR 500 crores with another INR 800 crores of unsold receivables. So both are absolutely same projects, but the money comes from the Omkar escrow account. And that's why this question keeps on repeating to us, that's why it's the loan to Omkar. While we are talking on Omkar, I also want to confirm that the way we are structured in our debt -- in our loan to Omkar for these projects are ITC-proof.

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Operator [143]

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The next question is from the line of Lalaram Singh from Vibrant Securities.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [144]

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May I know the -- within the housing book, how much percentage comes from the captive developer financing, which we have done, the projects?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [145]

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So almost 50% comes from our developer projects.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [146]

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Okay. And with the region-wise, can you split the housing book [Northwest]?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [147]

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Yes. So the maximum comes from the MMR region, which is around 45%, and then from the other cities like Bengaluru, Hyderabad, Pune, et cetera.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [148]

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Got it. And you said that most of the investment in terms of distribution and retail has been made. So what kind of loan book is possible with the current infrastructure which we have?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [149]

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Today, with the current infrastructure which we have, we can actually go up to any accounts INR 700 crores to INR 1,000 crores per month.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [150]

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Per month?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [151]

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Yes.

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Unidentified Company Representative, [152]

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Just to add, the reason why Mumbai region is higher because we've started from Mumbai. And then gradually, we're expanding across. So as we go on, you'll see -- you'll start seeing growth across other regions as well on the book, and that's where the opportunity is for us.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [153]

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Got it. Also, any particular reason why in this quarter, the disburse of the loan book growth has been pretty marginal in -- quarter-on-quarter? So -- because you're doing INR 1,000 crores, I think, every quarter, more than that. Now there's less than INR 300 crores in this quarter.

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [154]

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I think, as I've said before, our focus is really to play in the long term. And for that, we should look at liquidity today and strengthen ourselves, so that we can take advantage of the future growth opportunities.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [155]

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So it is, I think, through the demand side, right?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [156]

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Go ahead.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [157]

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So do you mean to say that it is through the demand side? That said, we are being more conservative, more cautious?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [158]

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In fact, I -- the way I look at it, the demand will -- because there are fewer providers of now loan, the demand will be quite good because there are fewer providers, and you will get higher NIMs in the future.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [159]

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Got it.

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [160]

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Kind of just a rephrase, we issue -- always last 4 quarters talk about consolidation will happen. I think consolidation has happened. And if you really take a step back and understand how many NBFCs -- large NBFCs are still there, you'll get the answer.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [161]

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Got it. And within the housing finance and inorganic growth, which we have been talking about, so it will be combination of buying out books or also entire NBFCs?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [162]

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Yes. It's as Chairman said, it will be -- it could be a combination of anything. At the end of the day, when you're buying a company, for us, the culture, the liabilities, the hidden liabilities are very important. So it could be -- it -- I think today, with so many NBFCs going down and hardly anybody remaining, I think you can easily take a guess of all the types of -- you can pick and choose the portfolio, you can buy the entire portfolio, you can pick up the company. You can have a company without employees, everything is there, available in the market. We will focus on value creation, basically.

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Unidentified Company Representative, [163]

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And whatever we will be looking at, it will be after extensive due diligence.

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [164]

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Also, we are in for the long term. It's not like today, we want to build a book and the -- this is a long-term franchise that we are developing. So we will do what is in the best long-term interest.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [165]

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Got it. And do you want to give some color on the commercial lending side? Because I believe that also is a really lucrative space, and it's pretty easy and given these scenarios. So how do we want to be in that sector and Piramal's positioning in that? And what should you think?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [166]

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I think it's a good question. Last time, we mentioned that, in fact, one of the learnings is that going forward, you are right, it's a very lucrative space. But having said that, even in the RE, we said we'll restrict ourselves to single borrower exposure. Even in the non-RE space, this is a commercial space you're talking about, which we call CFG, the commercial group, there, we had shared with you all that. The -- we will pursue cash flow base and hard security-based lending to the operating companies. As far as the measuring deals go, we will do it through a fund structure. And in fact, on that, we will be announcing a few of these initiatives in -- hopefully in the next few months.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [167]

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Got it. One data point, if you can give me. In the Phase 1 loan book is INR 62,000 crores. So if I just break it up into what would be 7 days and about -- 7 to -- or 7 to 30, within that?

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Khushru Burjor Jijina, Piramal Fund Management Pvt. Ltd. - Managing Partner and MD [168]

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What's the question?

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [169]

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And below 7 days? Within the Phase 1 loan book, can I just split off that into 0 to 7 days and 7 to 30, basically?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [170]

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For that, we'll have to come back to you. Because normally, we kept it on a 0 day -- or 0 to 30, 30 to 60, and 60 to 90 and so on. So for that, we need to come back to you.

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Lalaram Singh, Vibrant Securities Private Limited, Research Division - Research Analyst [171]

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Okay. Okay. One last question is on the Healthcare Analytics business. Can you share -- we have seen a pretty smart turnaround the last 2, 3 quarters, where, I think, growth had revived. And with the change in the employee base to India, we have seen the margins also going up. And in this IP, we talk about entering new geographies beyond North America. So what is the reason which we have for this business? And even in this, do we foresee the opportunity for inorganic growth? And just a broad view on the -- on this business in the next 5 years.

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [172]

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So in this business, as you know -- what are we doing in this business? Today, if you look at the environment, there's a lot of data that is going -- that is generating out of health care. Also, health care costs globally are going up. So we sit at the confluence of this, at the intersection of data for health care and health care costs going up. Therefore, there's a good demand for these products.

What we are trying to do is to see that -- how we can -- like today, India has a good strength as far as data scientists, analytics and all our are concerned. So we're trying to move some of the activities into India, so that the costs are more manageable, which is what we have done, as you have seen. We have now 2 operation centers, one in Bengaluru and the other in Gurgaon. And we are now trying to create more products and platforms, which people, Global Pharma, global insurers and hospitals can take advantage of. So going forward, about what we will do in this space in an organic way, would be small acquisitions that we would do, whereas there is some technology, there's some expertise that we want. By and large, otherwise, I think we would like to grow organically more.

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Operator [173]

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Ladies and gentlemen, due to time constraints, we'll be able to take one last question. That is from the line of Rajeev Agrawal from DoorDarshi Advisors.

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Rajeev Agrawal;DoorDarshi Advisors;Founder and Managing Partner, [174]

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One question is, I think, Piramal had always been countercyclical. And just raising capital at this point, do we think we can give in where our valuations are? I just wanted to get a sense of, are we structuring the capital raise in such a manner that we are not [immunized] for the current low price that we have?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [175]

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I think this is to take a -- I think we should take advantage of the opportunity. Even if you raise capital, the price is low. But the opportunities that you will get are also with where the valuations are much lower. So next to that, you are not badly off is what I think. So suppose -- I mean let me explain. If you are going to do, let's say, inorganic growth, the valuation which could have been of businesses could have been 3x booked, 4x booked only a year ago, today you may get it at book or below book. So relatively, you are well off. So the power today is not so much in valuation of power is into have the liquidity and the availability of that firepower. That is what we are looking for. Even in growth today, even if you do organic growth, our belief is that the NIMs will be much higher. So then the return that you will get on your equity will be good. So look at it in a broader sense. Let's not look at what's the valuation.

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Rajeev Agrawal;DoorDarshi Advisors;Founder and Managing Partner, [176]

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Got it. Okay. The second question is on the cost of borrowing. You talked about it moved from 10.3% to 11%. Could you just give a sense of what would be the incremental cost in Q2?

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Ajay Gopikisan Piramal, Piramal Enterprises Limited - Chairman [177]

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Please look at this cost of borrowing as a one-off in 1 quarter. When equity comes in, let me tell you the cost of borrowing will go down. So if you -- please, if you make projections based on this cost for the future, you'll be making, if I may say so, a mistake. Costs will come down. To us, please -- that's what I'm trying to say again and again, I see that the NIMs can go up today significantly if you have liquidity. Cost is not important today.

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Rajeev Agrawal;DoorDarshi Advisors;Founder and Managing Partner, [178]

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Got it. Got it. One additional question is...

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Hitesh Dhaddha, Piramal Enterprises Limited - Chief IR Officer [179]

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I think we are getting into a little bit of time constraints, so we would like to restrict the call now, especially -- a couple of questions you already asked. If you have more questions, you can always send us, and we'll help you -- respond to your questions.

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Operator [180]

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Ladies and gentlemen, that would be the last question. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Thank you, and over to you, sir.

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Hitesh Dhaddha, Piramal Enterprises Limited - Chief IR Officer [181]

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Thanks, everyone, for joining the call. Please feel free to reach out if there are more questions. We'll always be able to help you out. Thank you.

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Operator [182]

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Thank you very much, sir. Ladies and gentlemen, on behalf of Piramal Enterprises Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.