Piramal Enterprises Ltd
NSE:PEL
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
754.2
1 122.65
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Piramal Enterprises Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Piramal Enterprises Limited Third Quarter and 9 Months FY 2023 Results 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 from Piramal Enterprises Limited for the opening remarks. Thank you, and over to you, sir.
Q3 and nine months FY '23 earnings conference call. Our results material have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our businesses face. On the call today with us we have our Chairman, Mr. Ajay Piramal; Mr. Anand Piramal, Director, Piramal Enterprises and Piramal Group; Mr. Jairam Sridharan, MD, Piramal Capital and Housing Finance; Mr. Rupen Jhaveri, Group President, Piramal Enterprises; Mr. Yesh Nadkarni, CEO of Wholesale Lending Business; and Ms. Upma Goel, CFO of our company. With that, I would like to hand it over to our Chairman and I would request him to share his initial thoughts. Thanks. Over to you, sir.
Thank you, and welcome to our third quarter earnings conference call for the year FY '23. We are at an inflection point currently, and this quarter finally puts us on a solid foundation for future growth and steady profitability, with historical asset quality issues now fully accounted for. In performance of this quarter, as far as the AUM and the operating performance movement is concerned, I'd like to say that we continue to deliver on our strategic priority of achieving an AUM mix of 2/3 of retail and 1/3 wholesale. And in this regard, our retail AUM grew 29% year-on-year to INR 27,896 crores. Our Wholesale 1.0 AUM reduced 20% year-on-year to INR 35,101 crores. This has resulted in continued improvement in our retail wholesale AUM mix. Retail AUM now accounts for 43% of the overall AUM as compared with 33% in the third quarter of FY '22. We are very close in achieving our near-term target of having 50% retail composition of total AUM and are on track to achieve our stated target of having 2/3 retail composition of the total AUM in the medium to long term. As we continue to expand our retail lending business, we are also investing in manpower, branch infrastructure, technology and analytics of our retail lending business for its future growth. The financial performance for this quarter, we have registered a net profit of INR 3,545 crores during the quarter as compared with the net profit of INR 888 crores in the same quarter of last year.The key transactions leading to the gains were INR 3,328 crores on account of reversal of an income tax provision. Secondly, INR 1,106 crores on account of restructuring our Shriram Capital group and bond buyback. Also during the quarter, we created a onetime additional provisioning buffer of INR 1,073 crores on Stage 1 and Stage 2 assets of the Wholesale 1.0 AUM. With this provision, we have adequately provided towards Wholesale 1.0 AUM. And we are in the process of reducing our Wholesale 1.0 AUM, in line with our strategy through a combination of various needs such as accelerated repayments, settlements, et cetera. Our total provision stood at INR 6,485 crores versus INR 5,491 crore at the second quarter of FY '23.For the balance sheet, with our increasing network -- net profit even after creating this onetime additional provisioning buffer, our network has trended to INR 31,241 crore from INR 27,472 crore in the Q2 of FY '23. At these equity levels, our net debt to equity stands at 1.3x with a consolidated capital adequacy ratio of 31%. Our retail lending book continues to deliver strong growth with retail AUM growing 39% year-on-year to INR 27,895 in-house originated loan book at 53% of retail AUM is now larger than the acquired loan book. Disbursements grew by 593% on a year-on-year basis and 29% on a quarter-on-quarter basis to INR 5,111 crores with a healthy growth across both digital as well as digital products, resulting in an improvement in disbursement yield at 13.9% for the quarter.Our average disbursement ticket size stood at INR 11.6 lakhs for this quarter. We have firmly committed towards building a diversified and granular retail portfolio. The performance has been driven by the following initiatives over the last few quarters. First, the addition of branches. Over the last 1 year, we have added 74 new disbursement active branches.With this today, we have a growing network of 375 conventional branches, namely 343 conventional branches in Q2 FY '23 and 116 microfinance active branches versus 72 microfinance active branches in the previous quarter. We have established our presence across India, serving 450 districts across 25 states of the country. As stated earlier, our target is to serve 1,000 locations to 500 to 600 branches over the next 5 years, and we are constantly working to achieve it. Second part is branch activation.Moving beyond launching new products, we're also working towards making our branches activated with multiple products. Nearly 67% of our branches are now selling products beyond just the home loan. And not only housing and secured MSME loans disbursement grew 387% in the last 12 months, but also the disbursement under the unsecured loan category has seen a growth of 46% from the previous quarter and stand at INR 2,215 crores during the quarter. Third, project product expansion. We have been consistent in launching new products. And currently, our product stack consists of 13 retail products catering to different customer segments. This quarter, we launched 2 new products: Budget Housing in the housing loan category and LAP Plus in the MSME loan category.As we focus on the Bharat market, we also launched our maiden brand campaign to build the brand, Piramal Finance in our target segment. Fourth point is on digital embedded finance. We have 22 programs like across 20 partners who are fintech, OEMs and aggregators under our digital embedded finance business. Digital embedded finance disbursements grew to INR 1,238 crores, contributing to 6% of our AUM in retail, our digital loan offerings, but are us to significantly expand our customer franchise to 2.6 million with an active customer base of over 1 million, providing us substantial cross-sell opportunities. We received cross-sell disbursements of INR 1,862 crores in the last 1 year.The fifth point is on focus of -- on technology and analytics. In line with our endeavor to focus on technology, we also launched a new innovation hub in Bengaluru to accelerate the development of next-generation lending solutions and analytics. In line with our stated strategy, we have been working towards bringing down our Wholesale 1.0 book. Progressing on the same, our Wholesale 1.0 book AUM reduced 20% year-on-year to INR 35,101 crores. We continue to focus on resolution of Stage 2 and Stage 3 assets, which will further moderate the wholesale book size in the short term. A dedicated team is involved in monitoring and executing the resolution strategy for recoveries and monetization of assets. In addition, we will continue to remain vigilant across our portfolio and remain well provided for Stage 2 and Stage 3 assets.We are also focusing on building a high-quality Wholesale 2.0 book. While efforts were made towards completing the recognition cycle of the existing wholesale book, we are also investing to build a granular cash flow and asset-backed real estate and mid-corporate lending business that will give loans to well capitalized promoters across multiple sectors and geographies. We will build this book in a calibrated manner while capitalizing on this market gap. We've already built a new wholesale portfolio of INR 1,870 crores by adding INR 1,041 crores of loans during the quarter. Within the new real estate lending business, we have deals worth INR 697 crores outstanding as on December '22. Within the corporate mid-market lending business, we have already a book of INR 1,174 crores across diversified industry.I'll now speak on the liability management. Our ALM is well matched with positive GAP across all buckets. Due to our strong balance sheet and improving AUM mix, our average cost of borrowings improved to 8.4% for the quarter as against 9.1% in the same quarter of FY '22 and 8.8% in the quarter 2 of FY '23 despite a rising interest rate environment. with 77% of our liabilities being fixed in nature, we have remained very cushioned against major increases in interest rates. Our cash and cash equivalent is INR 6,032 crores at the end of this quarter.To conclude, the retail business is continuing to progress on its growth path with the AUM mix at 43% of retail and 57% of wholesale now. In wholesale, we are focused on bringing our Wholesale 1.0 book and at the same time, build a new granular real estate and mid-corporate lending business in a calibrated manner. With onetime additional provisioning buffer created during the quarter, we have now adequately provided towards Wholesale 1.0. Our healthy mix of liabilities is helping us to gradually bring down our cost of borrowing over the last few quarters despite an adverse rate environment, and our balance sheet remains strong with a capital adequacy ratio of 31%. We will continue to work towards creating long-term value for our shareholders. Thank you.
Should we begin the question-and-answer session?
Yes.
[Operator Instructions] We have a first question from the line of Abhijit Tibrewal from Motilal Oswal.
Just 3 questions. First is on the asset quality and the related provisioning and write-offs. Sir last quarter, they had moved around INR 5,900 crores of exposure from Stage 1 to Stage 2 and made associated provisions and write-offs and we have said that I mean, the asset recognition cycle is largely complete. This quarter, again, we have taken associated provisioning, while you might obviously choose to call it a potential or a management overlay. But now our press release says that we are adequately provided on the Wholesale 1.0 book. Sir, even in your routine remarks you had said that the historical asset quality issues have now been fully accounted for. My simple question is now can we draw the comfort that we have fully provided on the stressed wholesale exposures? So sir, that is my first question. The second question is, again, on your investments in the Shriram Group.I think if I recall correctly earlier, we had articulated that we would want to exit the Shriram investments by March '23, which is this fiscal year. Wanted to understand that will we still adhere to this timeline or has there been some rethink on our strategy or timeline on when we want to exit our investments in Shriram Finance? And lastly, recently, there was a media article I think which talked about our exposure to Sahana Group or its promoter. Wanted to understand what is our exposure in that account, in which of the 3 stages, is this exposure classified now? And after the sale of the [indiscernible] and the transaction, have you now recovered your money or what is the haircut that you had to take on this account?
Thank you, Abhijit, for all your questions, very good questions. Let me start and Yesh will chime in with a lot more of the details as well as others in the room. Your first and most important question was around the provisions, the one-off provisions that we have made onetime provisional buffer that we have created during the course of this quarter. And so some color on that. When we said last quarter that we were largely done with respect to the recognition cycle, that was absolutely correct. We stand by that statement that we were done -- largely completed from an asset quality recognition perspective in that cycle. This quarter, as you have seen, there's been a lot of one-off gains that have come in, in the balance sheet that has created an opportunity as well to create some additional buffers over and above whatever our models, et cetera, might have otherwise asked for and continue to ask for. So we've created this sort of onetime buffer. We want to be clear that we are done with respect to asset quality recognition. You saw that in the Stage 2 and Stage 3 numbers as well.If you see our Stage 2 plus Stage 3 numbers, there were INR 11,000 crores last quarter in wholesale, and that number has come down a little in the quarter to about INR 10,800 crores, INR 10,900 crores or thereabout. And so the total amount has come down. We have made more provisions. We have written off stuff. There is nothing surprising that's going on from an asset quality perspective. We just chose the opportunity to create or get on the other side of the cycle and start creating some provisioning buffers for ourselves. So we want to reiterate that we have done with respect to the Wholesale 1 asset quality and provisioning issue. We will take the answer -- anything to add?
No, I think the only thing that I would add here is, I think what you articulated is a good summary. But the reality also is because we changed our stance towards the asset resolution last quarter. And sort of consistently executed our revolution strategy, we have seen a significant reduction in the wholesale book. So we are on this journey where the wholesale book will continue to go in that direction. And as you again rightly highlighted, we have seen a fair bit of reduction in Stage 2 and Stage 3 assets. But because of the additional buffer that we are taking in Stage 1 and Stage 2 assets as well as overall provisioning, other direction is going up significantly across the stages. And that is the only thing which I would highlight. For your second question on Shriram. As you know, this company had a restructuring and bulk of the asset value is now in the form of listed shares. We continue holding those shares on the balance sheet. Some part of the gain is attributable to the one-off is related to that and that you should expect going forward, whether it's mark-to-market gain or loss. Given it's a public stock, it's large value for us, like we mentioned last time, we continue to monitor it. And once we decide what the right course of action is, we shall let folks know.And on your third point on or third question on news articles, again, we will not comment specifically on news articles. But what we can tell you is that we, as part of the DHFL acquisition, inherited a bunch of wholesale loans and from the time of acquisition, which was September '21, we have been consciously trying to sell those, whether it's NTAs or PTCs or whatever the case may be and what you read is one such example. So that's our response to that.
Okay. Just 1 follow-up question here. So when we have done this fair value accounting for exposure in the Shriram Group. When we do the fair value, is that fair valuation done based on the current market price of Shriram Finance, let's say, as on December 31, which is the end of the quarter? Is that how fair valuation has been done during the quarter?
That's correct. And we will do that again in March 31, as we still own the shares and whatever the gain or loss, will reflect in the fair value gain loss. So that would be very easy to spot, and we will be calling that out anyways every quarter.
Also, there is -- part of it is also unlisted. So about 75% of the total value is in listed stock and the balance is in unlisted. So that is valued at cost.
Got it. So in summary, at least on the Shriram Group, our stance is that we will want to exit it by March and then after the transaction, whatever fair value gains or losses are, we'll again recognize it in the March quarter.
I don't want to put a time limit of March because it depends on where the markets are and we will, at the appropriate time, do what is necessary.
[Operator Instructions] We have our next question from the line of Shreya Shivani from CLSA.
I have 2 questions. First is, can you tell us what is the interest reversal for this quarter? And the other question is on our -- given that our product mix is rapidly changing between retail and wholesale, what is the run rate credit cost assumption that you guys are building in? Any guidance around that?
First question of interest reversal during the quarter, we have reversed INR 58 crores during the quarter.
And as far as the run rate credit costs are concerned, the kind of business model that we are building, which we have spoken about in the past, 2/3 retail, 1/3 wholesale, within retail, about 1/4 of it being unsecured and the rest being secured. And within wholesale, a little bit of cash flow type mid-market lending and the bulk being real estate lending, that kind of business that we are working towards. So that business, in the go-to state will likely have credit costs in the 1% to 2% range. So we'll see, but it's a little ways away. Right now because we are so heavily provided, in the short term, the credit cost metrics might look more suppressed because of the heavy level of provisioning that's there right now and the fact that the wholesale book is degrowing. So in the short term, you might see a very different number. But in the medium to long term, that's the range that we are building towards.
So 1% to 2% in the medium term is for the whole book, right?
Yes.
We have a next question from the line of Santosh Kumar Keshri from Keshri Wealth.
Am I audible? So I'm an individual investor and manage funds for my family and myself. I think that we have been invested in your company for more than 2 years now and since that time, it's been all downhill. For example, the numbers that we are providing for, ECL model changing and suddenly, they have set a provision of INR 3,300 crores. And to the earlier participant's question, you said that we had an opportunity because there is the income tax write-back and there is valuation gain also from Piramal Pharma. So that led you to create further provision. When you look at the financials, top line and above the line and below the line, the tax provision for the gain on pharma valuation, all this is below the line, whereas the provision that you are making is above the line. So our gains are onetime, the losses that you are recognizing is for all time, on the assets. And this is not actually giving a very good picture of the financial health of the company. So what should you take as an indicator? Shall we exit fully from the company or it's like, it's all downhill and there would be further extra skeleton in the cupboards. Sorry, my question is sounding negative, but the point is that the financials are not giving us any confidence. How do you see it, sir?
Firstly, Santosh thanks for the question. Thanks for being a patient shareholder over the last 2 years. It is our endeavor as a management team and the promoters are on the call as well, you heard, it is our collective joint endeavor to actually build the -- build a business, which is built with strength for the long term, a business which will continue to be around decades from now and has the solidity and predictability that we expect from financial services institution. Some of these transitions from an asset quality problems, do take multiple years in financial services. I'm sure if you have been invested in the Indian markets and in financial services in the past, you would have seen other situations as well. What we have attempted to do is be disciplined over this last 2-year period in trying to address each of these issues as openly and as honestly as possible and use every opportunity to actually both, clean up the book as well as make provisions that are necessary to strengthen and create a strong foundation for the future. That is the path that we are on. As Chairman mentioned in his opening remarks, we believe we are at the point of inflection.And this quarter marked the moment when from kind of making defensive provisions, we start moving a little bit lower to the front foot and go on the offensive and start making some provisions like other banks have been able to do over the last 1.5 years, 2 years and create a large, large buffers for themselves. You see us getting into that domain in this quarter. So our intent, Santosh, is to build this business for many decades to come. And hopefully, we will continue to see you as a shareholder in this period as well. And hopefully, we will be able to pay you for the faith and the trust that you put in this company.And 1 other thing that I'd mention in this regard is that in the sort of 2-year period that you mentioned, if you just look at the net worth of the firm, the net worth of the firm has significantly increased. Now market value, we cannot control, as a management team, market does what it does. But we are at our all-time high in terms of our net worth on the financial services business of INR 31,000 plus crores right now. And that results in a capital adequacy of upwards of 31%, some of the highest capital adequacy that you will see in any large NBFC in the country. So we are doing the utmost to create an institution which is generational in nature. And hopefully, you will see the benefits of that in the years to come.
Fine. That's very good and nice words you have put to the whole thing. But the second point is Mr. Dhaddha, that every quarter we say that there would not be first provision, this is like we have taken extra buffer. But somehow or the other, we find opportunities to create fresh provision. And that is somehow not convincing the investors, the financial community as a whole. So what do we do to finally see an end to it or whatever are the provisions required on the worst case maybe you can take all in one go in 1 year and be done with it. Because there are something hidden in the cupboards, it may not be true, it's a figure of -- way of speaking. There may be something hidden in the cupboard that unsuspecting investor might feel and then they jumble stock or they'll just large sell-off. So it's not that the reaction of the financial community is negative. It's that the financials are not providing us confidence. So why -- my simple question is that why don't you take all hit in 1 quarter at most 2 quarters, and be done with it?
That's precisely what we've been doing in these last 2 quarters, Santosh, I think we are -- as we mentioned before, we reached the point where we feel very confident about where we are right now. Anything you'd add, Yesh?
No, I just think we like the fact that we have been consistent in achieving the objectives that we've been laying out for ourselves, be it in terms of change the business mix, between retail and one wholesale, be it about focused in which we are going about resolving the assets, which is reflected in the shrinkage of the wholesale book, are also provided, which we believe we are now adequately provided for. So that's our comment.
[Operator Instructions] We have our next question from the line of Nischint Chawathe from Kotak.
2 questions essentially. We just discussed about this exposure for a real estate -- to a real estate project in Mumbai, where you had probably some flat sales and recoveries. And you said that this was something that you inherited from the DHFL portfolio. So just trying to understand the book value of this exposure would probably be 0, right? So you would probably -- whatever you receive would be a gain.
So we -- at the time of the DHFL acquisition, obviously, we inherited this, as you rightly said. There was a certain value attach to all the assets, whether it's retail or wholesale. This is one of many assets that [indiscernible] had booked. And as I mentioned, for the last 1.5 years systematically that's been coming down. At this point, we will not be able to go into specific account details, et cetera. This asset is actually not on our books. We have sold it some time ago.
Okay. Okay. And just on the home loan side, on the retail business, how much interest rates would you have raised over the last 4 to 5 quarters?
On the portfolio, about 50 basis points in terms of the -- in terms of new originations, about 30 basis points.
On the home loan side is what you're saying?
Yes. Yes.
[Operator Instructions] We have a question from the line of [indiscernible] from PNR Investments.
My first question is regarding Shriram finance investment that we have done, sir. Initially, yes, there was a stress a couple of years back in our books. So we might have got the need to sell that investment, and we were looking for an opportunity to get out of it. Now given the balance sheet position and our strength and -- we have a capital adequacy ratio of 31%, do we really need to look at exiting that company or we can retain it for a long time is my question. Do we really need to sell it is the primary question? That is 1. The second 1 is as the previous investor who talked to you, the individual investor. My question is a bit related to that only sir. Like last quarter, even though you have in the presentation, said largely provided, in the conference call, you said it's not largely actually, we have provided completely. And this time coming up with another INR 1,000 crores is like really it's a bit disappointing because when you clarified in the last quarter conference call, it gave a confidence that is true, and it is a surprise having this INR 1,000 crore provision again.He just said I'm a 2-year investor, I'm a 12-year old investment in this company sir. I trust this company completely. But this gave a bit of a bad taste I mean we -- I genuinely believe that last time was the complete provision when you clarified about that almost provided thing. Hope these kind of things may not repeat kind of or is there any specific stress that we have honed and provided are completely just because we got INR 3,000 crores unexpected extra into books this time due to the tax reversal that we have simply provided INR 1,000 crores, would you please give the confidence this time so that it will help.
I'll take the Shriram question first. The response to that would be, we will evaluate any and all disposition or holding depending on the condition of the market. It is a liquid stock. Currently, it's mark-to-market on our books. At this point, we obviously cannot disclose what they are going to do. But in due course, once we make up our mind, we shall do the needful. On your second question --
On the provision, I will reiterate what I mentioned to the previous caller as well. We stand by what we said in the previous quarter. We said in the previous quarter that we were largely done with respect to asset quality recognition cycle. And we were -- and what we are doing in this quarter is us getting on the front foot, getting a little bit more on the offensive and essentially creating a war chess, creating a little bit of a defensive buffer, as you have seen a lot of banks and financial institutions do over this last 1.5 years since COVID, people have created a lot of these things, whether you call them contingency buffers or by other name. People have created these buffers because profitability has been around and you want to create a little bit of bulletproofing for your portfolio for the future. So far till last quarter, we have not been in a position to actually get there, but this quarter, we are. So you've seen us actually get into that mode a little bit and try and start creating some bulletproofing of the future. So we continue to feel really good about these recognition cycle. I will reiterate that our Phase 2 Stage 3 assets are today lower than what they were in the previous quarter. And most of the provisions that we have made in fact, all of the provisions that we have made is in Stage 1 and 2, as you saw.So clearly, we are giving the indication that we are creating this from a -- creating a buffer for the future perspective, not because there is any new information that has come out about in this last quarter about the asset quality, status of any of our accounts. We want to be quite unequivocal on that point. So we continue to feel very comfortable about our staging of assets as well as the level of provisioning the assets held prior to this onetime buffer creation. And of course, this onetime buffer only strengthens that situation even further.
That is very helpful, sir. Just this reconfirmation helps well. And coming to the first question, sir, about Shriram Group was a bit different. I am asking whether do we -- I mean it looks like the business is doing good. So do we really still need to think up for exiting or we can retain it? Why not is my question? Why not retain that as a strategic investment as long as the business is going good?
See, there are various possibilities we can do many things. That is also 1 of the possibilities. For you, as a shareholder, you could directly own the Shriram share as well. Why would you want to hold it through us? For us to -- for 1 publicly listed company to hold large share in another publicly listed company is a bit weird, and it adds a layer of intermediation in ownership, which is nonvalue-adding for the ultimate beneficiary shareholder. So -- but that said, like we are -- we will take a call on kind of strategically how we want to proceed with this over the coming months, and we will let you know the moment there is something to disclose here.
We have our next question from the line of Bhavik Dave from Nippon Mutual Fund.
I hope I'm audible. 1 question is regarding the Stage 3 assets that we have on the wholesale side and that is around INR 3,700-odd crores, which was like INR 1,300-odd crores. That's the mode that you mentioned that is a non-RE exposure, which is credit and paid, but obviously, it's not yet like 90 DPD. Just want to understand what kind of exposure is like what is -- which sector is this? And also wanted to understand this INR 3,700-odd crores kind of Stage 3 that we have, what is the kind of resolution pipeline can 1 thing of? Like because it's usually provided at 72%, but is there any visibility on resolutions on this front or any pipeline that we can think about from a next 12-month perspective?
Yes. So to address your first question, there is 1 specific asset that had more during the quarter to Stage 3, which is a non-real estate sector asset. And which is -- provided for significantly to the extent of 75-odd percent, which has caused the change in the numbers, as you see, between Stage 2 and Stage3. And that's what this is about. After a resolution of that specific asset is concerned, we have been working on resolution for many months now and are in literally the final stages of documenting the settlement, which is again in line with the reason that we see in front of you in relation to provisioning for that specific asset. As far as the other stationary assets are concerned, mostly, they are in -- again, it's sort of a mixed bucket between real estate and non-real estate assets. And we've been actually working on separate sort of regulation strategies for each of the [indiscernible] underlying complexities involving those assets. We made significant progress in terms of resolving some of them. And for some of the resolution will take a few more quarters to come. As we say, I think ex the movement of that asset from Stage 2 Stage 3 this quarter, I mean, the Phase 3 assets have actually reduced margins and that's going in the right direction.
And sir it would be great if you could just provide some color on the resolution pipeline because that number -- the INR 3,700-odd crores that we have, if we can get a reasonable sense on how many -- like how many accounts they are like, the top 10 exposures in the sense that how can that be resolved over a period of maybe 12 months, 15 months, [indiscernible] do just to make us understand that so that there's some clarity on how --
I'm sorry sir. Your sound is coming muffled.
Sorry. I was trying to understand that if you can give us some details, maybe this time around or next time on the top 10 accounts that we have and that -- the resolution timelines that we can anticipate that will be great. And because that will get more clarity on the Stage 3 assets that we have because it's a large chunk. Second question is to Jairam, sir. Sir, I just want to understand that the retail piece. We've been growing the digital unsecured piece reasonably -- at a reasonable pace. And I just want to understand what exactly are we doing there in the sense, who are the large 2, 3 partners where we're taking the loads from in the sense who are the originators? What kind of funding is this, like what ticket sizes? Any color on that would help because that's growing at a reasonable pace. And I just want to understand the unit economics in the sense what kind of ROAs do these businesses generate, right? Because they are like not AUM building, they are more disbursement linked. So from that perspective, how does the profitability on this product, these unsecured products work for us on the digital front?
Okay. Lots of questions there on [indiscernible] Largely -- I'll start with the last thing you said, and that's the right way to think about it. This is not a business that's about AUM building. This business will always be kind of single-digit percentages of AUM. It's unlikely that it gets larger than that. And it's about acquiring a lot of customer relationships, to whom you can in the future cross-sell a lot. So this is our largest customer acquisition engine. And hopefully, over time, we'll keep converting this customer into a franchise by actually cross-selling some other products as well. We have made some disclosures on how our cross-sell engine is working, et cetera, and you will continue to see more of that. This business has today about 22 partners and 26-odd programs under which we do this. The name of partners, et cetera, is disclosed on our website, you should take a look at it. Our largest partners here would be -- would be fintech companies like Navi or EarlySalary or ZestMoney or MoneyView and KreditBee, many of these guys are all at roughly same level. Some of the biggest partnerships like Paytm, et cetera, are still relatively small for us, and we are just scaling them up because we are still -- those are still new partnerships and new relationships that will get scaled up. About half of this business, about 50% of this business is roughly it's a INR 1 lakh ticket size and greater than 1-year duration. The rest of the business is short duration, small ticket business. Overall, the way the economics of this business work is that on a net-net basis, we make an ROA of upwards of 4% on this business. And so, it's a small -- part of the AUM pie, but it makes a very strong ROAs and also gives us match of customer base. So that's the way to kind of think about this part of the business.
Understood. And Paytm and all are new partners, right? That's what I understand.
Yes, we start -- we went live with Paytm and did our first disbursement in the third week of December.
Sure. Understood. Understood. And the other businesses that we're running, like housing and the secured side of the business. Is the business being done by the same team which we acquired from DHFL, or how has the manpower worked around for this business, right, because it's a set up business?
Yes, most of our manpower is new. It's neither from kind of the legacy Piramal company nor from the legacy DHFL company. Most of the people are new and have been kind of hired post the merger. You might recall that right after the merger, we were about 4,000-odd people in terms of our total strength. Today, we are upwards of 10,000 people. So practically, that entire staff has joined us in the last year or so. So these are people from the industry. We are at about 90% lateral and about 10% fresher right now, so most of the population that you see running the retail business are people who have come in laterally with very solid retail lending experience and various other institutions and are now part of this joint retail finance business.
We have our next question from the line of Bhaskar Basu from Jefferies.
I had a couple of questions. Firstly, on the asset quality, I mean, there has been some slippages from Stage 2 to Stage 3, and we still have about 12% Stage 2. So when you say, you're done in terms of provisioning, have you kind of accounted for a move from the Stage 2 to Stage 3, or would you need to incur more provisions when these assets slip possibly into Stage 3?
No, these are adequately provided for, these assets. As things stand today, we have seen that the Stage 2 and Stage 3 assets put together is roughly INR 10,000-odd crore vis-a-vis INR 11,000-odd crores, which was the number for last quarter. So while the book has reduced, we actually have increased the provisions combined these asset -- stage categories to INR 4,600 crores from INR 4,400-odd crores, which makes us believe that we have actually adequately provided for the complexity of the underlying assets in [indiscernible]
So Bhaskar we have roughly 35% provided between Stage 2 plus 3 and for 100% secured book in real estate, we think that's a pretty good place to be in. Now there might be kind of one-off timing issues, in some quarters, something goes from 2% to 3% and in the next quarter, we get some recoveries, et cetera. I mean some timing issues might happen, but there'll be minor in the larger scheme of things, Stage 2 plus 3 asset pool with a 45% provision cover when it's all sort of 100% secured book, we believe that's fully provided for that book.
The second question was on the AIF front. Basically, AIF amount has been stable for quite some time, but this quarter, we've seen a INR 2,000 crore increase. So if you can just kind of help me understand that.
Sorry, could you just clarify your question?
The AIF, which is part of your wholesale book, which used to be about INR 5,100 crores roughly in the prior quarters have gone up to about INR 7,200 crores.
Just to clarify, this quarter, the only increase would be in the form of 1 resolution that we've done, and that could lead to some security increase. But we can take this offline as we able to further clarify what exactly you mean we'll be able to provide more information.
The AIF number markup has not changed materially, dark quarter to-go quarter. So maybe we can give the setup offline on what number you're looking at. Maybe there's some confusion.
Okay. I'll take it offline. The third question was when you kind of look at running down this book as you kind of tend to. Do you foresee further haircuts as you try to kind of monetize these assets or sell down or that's all accounted for now?
No in fact, that's precisely the point that we've been trying to make for the last couple of quarters. And the provisions that we are taking have actually enhanced our ability to go on the front foot and actually recover money using whatever the strategies it for a given asset. So we don't actually expect any further provisions or losses to come beyond what we already have provided for, for this category of asset and therefore, that's what we have carryforward.
Okay. My final question was on the Shriram investment. So basically, just wanted to understand the thought process once if you decide to kind of liquidate that, what is the plan with the excess capital because you already overcapitalized? So what's the plan to do with the proceeds? So at the right time, I think we will share that you would have seen over the last 1, 2 quarters, we do look opportunistically for the right kind of acquisitions that set up our financial services strategy. So these will keep coming. We have few things in mind. So at the right time, we'll be able to share a lot more.
We have our next question from the line of Sandeep Jain from Baroda BNP Paribas Mutual Fund.
First on the PL side. If I look at that -- sorry, I joined slightly late, so I don't know whether you explained or not. Operating cost is slightly higher. So what are the kind of range in terms of guidance in terms of operating expenses, if I look at that way for years to come? And second, on the book, just to continue with the Bhaskar question. So if I look at the wholesale Stage 1, it is declining, right, from INR 39,000-odd crores to INR 26,000-odd crores. From here onwards, the decline in the book, what you are trying to say would be largely due to the repayment and not due to the further recognition of provision kind of thing, that is what the sense which we are getting?
Yes. Certainly, the latter of what you're saying is like there is no provision later reduction, like, of course, I mean, Yesh might decide that the best way to resolve the asset is to actually sell it and we might get the right opportunity to do that given that we are well provided, our ability to actually consummate some of those transactions is a lot higher. So that might happen. But otherwise, no, there isn't any provisions-led reduction and net advances that you should expect in the times to come. That's not the way we are talking about -- when we are talking about reduction in the wholesale book, it is through resolution, not through additional provisioning. Now your first question on OpEx, you might have seen that we made in our presentation a disclosure on OpEx to assets as a ratio, and we have shown kind of that this quarter, we were at 3% annualized OpEx to assets. Historically, you might recall that when we were a wholesale-only company, we used to have an OpEx to assets of roughly 1.3%. Right now, that number is at about 3%. As we continue to make investments in the retail business as we continue to expand our branches and our staff size, et cetera, which should continue for another year or so, you should expect to see OpEx to assets go up a little. In the medium term, our expectation when we become a book which is 2/3 retail, 1/3 wholesale, and we have started to see more of the scale efficiencies come in on the retail side of the business. You should expect OpEx to asset in the 2.5% to 3% kind of range with wholesale being at about 1.25% and retail being at roughly 3%.
So the related question, which has said that the digital unsecured retail book and on the retail book kind of thing, when you're saying that this business is giving you a 4% kind of ROE. So what kind of OpEx to assets and what kind of credit cost you are assuming in that 4% kind of ROA?
So in the digital embedded finance of OpEx, that numbers are very low because most of the OpEx is actually being borne by the partner. So our OpEx is very limited to our internal staff, et cetera, Apart from that, the rest of it is all acquisition costs that we share with the partner, right? So we give the partner revenue share in the form of origination fee or a skim of the interest based on the performance of the tranche, et cetera. So -- but really, apart from that, there is no real operating expenses on our side in that business.
And in terms of credit cost?
In terms of credit cost , obviously, it's a higher risk business than normal. But again, because of the way the OpEx is structured where there is a skim on interest, which is linked to the credit risk performance, our creditors outlay is capped in almost all cases. So overall, kind of we can -- we have budgeted in up to 4% of credit cost in that business. The effective number that we are seeing is much, much, much below. It's actually we are seeing effective numbers in the 1% range.
Okay. And again, last question on Wholesale 1, the declining of the book from here onwards, what kind of percentage decline we will see from here onwards? We have seen a 20% decline in last 1 year. So now the repayment or resolution means any kind of timeline or any kind of stays that, okay, from here onwards, it will not decline kind of thing, and we will run this book kind of. So how you will look at that Wholesale 1 book?
So look, I think we've got a fairly good traction on resolving the assets across stages, right? And part of our book also runs off organically, given the fact that we are still amortizing loans, right? So what we have achieved in the last 1 year is a reflection of that. We have shone by about 20%. I think going forward, we don't give any specific guidance, but something similar is what we will sort of inform then.
We have our next question from the line of Rikesh Parikh from Rockstud Capital LLP.
Just 1 question. For this quarter, we have provided for a contingency raised provision on the overall asset. So just wanted to understand from overall portfolio point of view, what kind of provision we are, as a contingency, we will lift to where we'll be comfortable as such from the future onwards, we can expect that much additional provisions could be possible as such?
I don't think there's any specific number that we have in mind. I think what is a little bit opportunistic you do it when you can we add an opportunity we did it. I don't think we have a plan of continuing to do it in this manner. So I think at an overall provisioning level if you see on a INR 64,000 crore book, we have INR 6,400 crores of provisions. So we have a ton of provisions right now on our book. I don't think there is much interest on our part to create kind of much more in the form of any of these contingency provisions. I think we're good right now.
And second is, I just wanted to understand about how the DHFL books what we acquired is stepping up right now?
Yes, the DHFL book is shaping up quite well. We continue to get recoveries from old DHFL NPAs. We are also seeing the core performance of the non-NPA book of DHFL continue to hold up quite nicely. So we are very happy with the performance. It continues to be a little bit ahead of our estimations when we did -- but it has been a highly transformative and positive acquisition for our company.
We have our next question from the line of Vinit Sharma from Sankhya Funds.
Some of them were already raised earlier. A couple of comments. 1, it would be helpful if you could give some guidance for FY '24 for provisioning related credit costs? And second, given the steep discount that the stock trades compared to book value, given that we are very comfortably capitalized, would we consider a buyback?
On your first point, guidance, et cetera, those are Q4 events we will see as we get to Q4 results, we will take a look at our coming year and how we want to talk about some of the forward-looking statements on where we are. I think, as Chairman mentioned in his opening remarks that this quarter has been a little bit of an inflection point quarter for us. And hopefully, that you will continue to see that spirit being reflected in the quarters to come and in the next year as well, where you should expect to see a lot more of the AU type business performance rather than a lot of one-off driven business performance. And on your second idea, we note your suggestion. Thank you for that. And we have -- we always welcome suggestions and ideas from shareholders on what might be good ways to actually utilize the capital that we have. Needless to say, you'll appreciate that any capital market action of that nature, we will -- we can only talk about if and when there is something concrete for us to disclose to you. So we take your suggestion on board.
We have a next question from the line of Nimish Maheshwari from RSPN Ventures.
I just want to -- it might be a repeated question, but what is the connection or the DHFL connection with the Sahana Group? And will it come in our book in Q4 or how much if it is?
We have already replied to that. We have mentioned that we have already sold this asset, and this was part of the acquired assets from DHFL in September 2021 at a significantly markdown price and that asset is already out of books.
We have a next question from the line of Vinod Jain from WF Advisors. Ladies and gentlemen, due to time constraints, that was the last question. I now hand over the call to Mr. Jairam Sridharan for closing comments.
Over to you, sir. Thanks, everyone. Please feel free to reach out to IR for any further questions.
Thank you. Thank you. On behalf of Piramal Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.