Piramal Enterprises Ltd
NSE:PEL
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Piramal Enterprises Ltd
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Ladies and gentlemen. Good day, and welcome to Piramal Enterprises Limited Q4 and FY '22 Earnings 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.
Thank you. Good evening, everyone. Hope you're safe and in best of your health. I am pleased to welcome you all to this conference call to discuss Q4 and full year FY '22 results.
Our results materials 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, we have with us our Chairman, Mr. Ajay Piramal; Ms. Nandini Piramal, Executive Director of Piramal Enterprises; and Chairperson Piramal Pharma; Mr. Khushru Jijina, Executive Director of Financial Services, Piramal Enterprises; Mr. Jairam Sridharan, Managing Director, Piramal Capital & Housing Finance; and Mr. Vivek Valsaraj, CFO of our company.
With that, I would like to hand it over to our Chairman, and I would request him to share his initial thoughts. Thank you.
Good day. I have great pleasure in welcoming you to our investor call today. The year FY '22 was transformational for our company, marked by the achievement of 2 major milestones. Firstly, the acquisition and integration of DHFL within our Financial Services business. This has been a value-accretive acquisition and also has enabled us to achieve significant growth. It has materially given us a further impetus to our business ambitions and targets.
Second, in the year, we made significant progress on the Pharma demerger and simplification of our corporate structure. Our demerger was approved by the Board in October 2021. We have now already received consent from RBI SEBI Stock Exchanges and clearances from most of our creditors. NCLT has now allowed us to convene a shareholders and creditors' meetings and seek their approval, too. We are on track, and the demerger is expected to get completed by the third quarter FY '23, of course, subject to various required approvals.
Quarter 4 and FY '22 performance, I would like to now talk about. FY '22 saw several headwinds that brought a degree of uncertainty to the world economy and inflation risks to our Indian economy. And despite such a volatile environment, the company has delivered a resilient performance during the year. During the year, we had revenues of INR 13,993 crores and a net profit of INR 1,999 crores during the year. For the fourth quarter of FY '22, our performance had a revenue growth of 22% year-on-year to reach INR 4,163 crores, driven by strong growth in Financial Services post the DHFL acquisition and a healthy growth in Pharma revenues.
Our reported net profit is INR 151 crores in this quarter, with a net loss of INR 321 crores for the Financial Services business. The reported net profit during the year was primarily impacted due to our decision to make additional provision against Stage 2 assets, worth INR 822 crores and an interest reversal of INR 215 crores, totaling INR 1,037 crores. We reevaluated our wholesale portfolio during the quarter to detect any lasting impacts from our clients of the pandemic or recent stresses in the economy.
Based on this assessment, we moved some of our non-real estate exposures to Stage 2. These were high-yield, structured mezzanine loans in the non-real estate portfolio done under the holdco structure in FY 2018/'19. We have discontinued doing such kinds of deals. Over the last few years, we've made a significant progress in building a resilient business model that can tie over multiyear business cycle.
You might recall that we had categorized our transformation journey in Financial Services in 3 phases. So Phase 1 is consolidation. Prior to the DHFL acquisition, we have completed Phase 1 of our transformation where we made the business more resilient by: One, improving capital adequacy; two, reducing the loan book concentration; three, creating provisions in response to COVID-19; four, reducing leverage; five, eliminating short-term debt; and six, strengthening our liability side.
Phase 2 of our journey has been transition plus quantum growth. We have achieved a major portfolio transition as well as significant growth through the acquisition of DHFL that would have otherwise taken several years to accomplish through the organic route. Our AUM grew 33% year-on-year to INR 65,185 crores with retail AUM growing by 4x year-over-year to INR 21,552 crores. This has also achieved diversification and the share of retail loans has increased to 36% from 12% as of March 21.
We have significantly increased our presence with 1 million life-to-date customers and 309 branches across 24 states and union territories. We've also had granularity creating one of the leading housing finance companies in India, focused on affordable housing with an average ticket size of 13 lakhs.
Our off-balance sheet, securitized pool of INR 18,747 crores generates fee of 1.5% per annum. All this was achieved without any additional equity infusion into our business. The DHFL integration has made significant progress in the last 6 months, and we are continuing to focus on capability building. We retained 3,000 employees of DHFL, rolled out 3,000-plus job offers post the DHFL acquisition. And we have now reactivated nearly all our [indiscernible] DHFL branches.
99% of our branches are login active, 98% are sanction active and 97% are disbursement active as of March '22. With the DHFL acquisition and integration now complete, we are now embarking on Phase 3 of our transformation journey and have put in place the appropriate levers for a superior performance in the future.
I would like to now share with you some of our aspirations for the next 5 years up to the financial year 2027. Over the next 5 years, we aspire to achieve a retail wholesale mix of 2/3 retail and 1/3 wholesale. The AUM -- we want to double the AUM of the Financial Services business from FY '22. We will have significant retail growth with retail disbursement going at 40% to 50% on a 5-year CAGR basis.
In terms of leverage, we want to further optimize our capital utilization with our net debt to equity reaching to anywhere between 3.5x to 4.5x. In retail lending, in the last quarter of FY '22, our disbursements grew 100% quarter-on-quarter to INR 1,480 crores as a result of activation of multiple branches and customer acquisitions.
We are now on track to achieve disbursements of INR 2,500 crores to INR 3,500 crores in the third quarter of FY 2023 which is almost 5x to 7x of the premerger level. Our disbursement yields continue to improve to be 12.5% in the last quarter versus 11.3% in the first quarter of FY '22, driven by a shift in product mix of disbursement.
Coming to our distribution network. During the quarter, we have now added 14 branches to our existing network while simultaneously closed down 6 high-cost branches, thereby increasing our branch network to 309. We are now working towards all -- converting all DHFL branches into multiproduct branches.
We are looking to expand our branch network further by adding 100 branches in FY 2023. Over the next 5 years, we target to have presence across 1,000 locations with over 500 to 600 branches.
Technology initiatives, I would like to talk to you about. We have built an in-house software development capabilities, which are being utilized to build all our digital assets. We have set up a digital center of excellence in Bengaluru. We have hired 200 people in the technology and analytics. Also, we have now launched mobile app, which has over 125,000 downloads so far.
As part of our technology strategy, we are building a world-class tech and artificial intelligent-led lending business, which is cloud native and hence, scalable. We are investing for future growth. We should be able to significantly grow our retail business every year for the next few years as we continue to focus on capability building and investing for the future.
We have assembled a best-in-class leadership team to build a technology-led retail lending business, which should help us in improving cost efficiency as well as manage better asset quality. We are expanding our product suite by launching new, differentiated high-yielding products. We are getting into partnerships and equity investments in leading fintech players such as a 10% equity stake in EarlySalary, which has the necessary building blocks to reach significant scale.
Now coming to wholesale lending. We see a pickup in the real estate sector. As you know, the RE sector go through upcycles and down cycles, which typically lasts for 6 to 8 years. Residential real estate inventory levels are at an 8-year low and affordability has also improved. Moreover, there has been a significant consolidation in the real estate sector over the last few years.
Our performance of our developer clients, we find that collections from homebuyers have increased significantly amidst advancement in the project completion. Over the last few years, we have significantly increased the granularity of the wholesale loan book.
As of March 22, no account net of provisioning exceeds 10% of financial services network. What is going to be our wholesale lending 2.0. There has been a significant consolidation across NBFCs in wholesale lending. PEL is among the few that has continued to remain strong despite the prolonged crisis environment. We aim to cater to a large addressable market and started executing new deals in our wholesale business.
Our new approach will be more calibrated, smaller loans, granular book and cash flow backed lending. It will be based on our long-term relationship with borrowers with superior risk management. We have created focused analytics driven underwriting vertical to work along with the originators and group risk. Also, there would be a proactive asset monitoring with early-warning signals. High-yield loans will only be done under finance structures.
Coming to asset quality. Our overall GNPA ratio marginally increased by 10 bps quarter-on-quarter to 3.4% and our NNPA ratio fell by 20 bps quarter-on-quarter to 1.6% as of March 2022. Total provisions plus the additional provision that we made during the quarter now stands at INR 3,735 crores, equivalent to 5.7% of our AUM. Provisions against wholesale AUM stood at 7.9% due to the additional provisions being created during the quarter 4 of FY '22.
The asset quality of the acquired DHFL book is in line with our expectations. We continue to remain vigilant across our portfolio and maintain conservative provisioning to take care of contingencies arising in the future. We also have an alternative platform. Our fund management business has marquee institutions such as CDPQ and Bain Capital Credit as our long-standing partners. The platform had more than USD 900 million in committed capital across 2 funds as of March 2022. We aim to build a robust alternative platform by scaling up the existing funds and expanding the product line.
I want to talk about our life insurance business. Through the DHFL acquisition, we have also acquired a 50% stake in Pramerica Life Insurance JV with Prudential U.S. The customer base has -- the company has a customer base of 2.5 million and a network of 15,000-plus agents. Given the company has a robust balance sheet, solvency ratio of 404%, we aim to drive growth of the business in the coming years.
On the liability side, our average borrowing cost for the fourth quarter of FY '22 declined 170 bps year-on-year to 9.2%, while our incremental cost of funds was nearly 8.5% during the quarter. We expect the borrowing cost to decline further as we diversify the loan book, tap additional funding sources and repay -- refinance our high-cost debt. Moreover, we are well positioned to navigate the current rising interest rate environment and 79% of our borrowings are on a fixed rate basis.
In closing, as far as Financial Services is concerned, I could say that we outlined our FY 2027 aspirations and remain committed to create a scalable Financial Services business across both retail and wholesale lending while delivering sustainable growth and profitability for the long term, with scalable, high-tech-driven retail and wholesale lending platform, significant firepower for value-accretive acquisitions as well as organic growth with a low debt equity ratio of the Financial Services business at 2.7% and value unlocking potential that is the investment in Shriram.
We feel that we are well placed to become one of the largest top-quality NBFC through both organic and inorganic growth in coming years. And now I would like to come to our Pharma business.
Our Pharma business has delivered a 16% revenue growth delivering revenues of INR 6,700 crores during this year FY '22. Our Consumer Healthcare and Complex Hospital Generics businesses delivered strong performance with year-on-year growth of 48% in the Consumer Healthcare and 20% growth in the Complex Hospital Generics during the year. our CDMO business grew 10% year-on-year. The performance was impacted due to some execution-related challenges faced related to logistics, availability of raw material and manpower. Our business delivered an 18% EBITDA margin during FY '22 and 22% in the last quarter FY '22.
Despite these short-term challenges, our businesses are continuing to execute on their strategic priorities. The CDMO business, we have been focusing on expanding major sites through customer-led brownfield expansion across our facilities such as in Aurora, Pithampur, Riverview, Grangemouth and Morpeth. In all, we have $157 million of growth-oriented CapEx investments committed across various multiple sites. We're increasingly partnering with customers as the Phase 3 projects transition to commercial.
Our revenues from commercial products has increased 3x since FY '19 to $56 million. We are also leveraging our end-to-end model to offer integrated services and now have a track record of executing 170 integrated projects. And this number has grown by 1.5x since FY '19 and contributes to 36% of our development order book. In addition, over the last few quarters, we've also made more inorganic investments. We've invested in Hemmo Pharmaceuticals, adding peptide API development and manufacturing capabilities and Yapan Bio broadening our services in the biologics space.
Coming to Hospitals -- Complex Hospital Generics, our businesses leverages a differentiated portfolio of 40 existing products and grew 20% year-on-year. We continue to retain leadership position in key portfolio products across multiple geographies. In addition, we have developed a strong pipeline of 36 products in niche areas, including injectable anesthesia, pain management, intrathecal therapy and a broad range of other indications. In the India Consumer Healthcare business, we continue to deliver robust performance with a revenue growth of 48% year-on-year and 55% in the last quarter of FY '22.
In addition, the business has delivered to a clearly identified strategic priorities during the year. We are focusing on growth from power brands, which now contributes 57% of total sales. We continue to significantly invest on media and trade spend in FY '22. We have engaged well-known brand ambassadors to help us improve brand recall for many of our products.
In addition, we've launched 40 new products and 18 SKUs during FY '22. New products launched since April '20 contribute to 15% of our sales. We've also strengthened our presence in alternative channels of distribution, including our own website, modern trade stores and e-commerce platforms.
In summary, [ post the Carlyle fundraise ] for Pharma, we have been investing organically and inorganically across all our Pharma businesses. All of our key businesses have a compelling plan for the growth and executing on the strategic priority. In the medium to the long term, we expect about 15% revenue growth across the businesses and expect the EBITDA margin to reach 25% to 28% in the 3- to 5-year time frame.
In summary, overall, I would say that we are moving now towards 2 separate listed entities, and we have significantly enhanced our disclosure both in Financial Services and the Pharma businesses. We believe that both the emerging listed Financial Services and Pharma companies with their balance sheet strength and uniqueness of our business model are well positioned to tap organic and inorganic growth opportunity and create long-term value for our stakeholders in the years to come.
The Board has recommended a dividend of INR 33 per share, subject to the shareholders' approval at the AGM. The total dividend payout would be INR 788 crores. Thank you very much.
[Operator Instructions] The first question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.
Sir, on the pharma side, typically, fourth quarter [ most of the year ] high margin and in terms of [ sales higher quarter-over-quarter ]. But considering the execution and [indiscernible] so will be spillover in 1Q, if we have to look at it from a trajectory perspective.
So some of our deliveries, which were scheduled for quarter 4 could not get delivered because various execution issues more specifically at our overseas sites. So some of them will spill over through quarter 1. However, there are also challenges with respect to nonavailability of people and nonavailability of materials for some of this. Considering in some of the sites, we have constrained capacity, not all of them would be potential upside for next year. But yes, to some extent, this will spill over to the quarter 1.
Got it. And we've seen phenomenal growth in consumer product sales. So would you like to give a little more of that...
Sir, sorry to interrupt, but your voice is not very clear, sir.
Is it better?
Yes. Yes, now it is. Please proceed.
The consumer product sales has shown a very phenomenal growth throughout the year. So I would like to have further color in terms of what kind of the growth rate can be expected for over next 2 to 3 years?
So as you're aware, we had consciously decided to reinvest profits back into the Consumer Products business and significantly increase our media spend. And with that intent, we are pushing up our brands through a lot of media-related spend. In the mid-term, we expect the consumer products to grow at about 20% and with continued focus on growing the power brands through a lot of media and trade spend.
We don't give business-wise guidance in Pharma. And on an overall basis, we expect the growth rate to be nearly 15% in line with our track record of -- over the last couple of years.
[Operator Instructions] The next question is from the line of Piran Engineer from CLSA.
A few of them. Firstly, can you elaborate a bit more on some of these restructured assets -- sorry, some of these assets that we've put in Stage 2, those mezzanine loans, which sector do they belong? How many loans are there? What is, say, the LTV outstanding? How much can we recover? And because -- it's been a while since COVID has happened, things have recovered. We did not recognize this and now 8 quarters after COVID we are recognizing this. So what really changed in the environment that we're recognizing this now?
Yes, let me answer that first and then you can ask the other questions. So as Chairman said that -- first, let me give a background that these are related to non-RE basically the holdco level mezzanine debt, which are loans or bonds, which were given to renewable sector. Having said that, the number of accounts in the non-RE, if you have seen before I go directly to answer your question has been coming down.
We had a book of INR 9,000 crores. Today, it is below INR 5,000 crores. In fact, it is below INR 4,500 crores. So we have been constantly bringing it down because that type of a business, which is non-RE at holdco level, we have stopped doing that business for a while.
Now coming to your question. So basically, indeed, we were looking at -- we have looked at 3 of those accounts, 2 being from the renewable and 1 was an auto ancillary. And one was a large account in the renewable space. As you know, we have been talking about it for the last 1 year. We, among the other bondholders had put this company for sale.
And we were expecting certain realizations. However, the realization, which has now come through the bid process is lower than what we expected, and that is why the extra provisioning has been made by us. Similarly, in the other assets, which is, of course, smaller, again, a renewable asset, which was put to sale. The realization is lower than what we expected, and that is why the different -- extra provision.
Coming to the third one, which is an auto ancillary -- it is on the auto ancillary sector, supplying parts to the 2-wheelers. Here, we have made an extra provision looking at the performance as on date. But however, this, I would say, is within abundant caution. There is -- there would be an opportunity to recover more than the provision. But the other 2 assets, the first 2 assets were basically put on the block and the sale and we are in the final negotiations. Some of them have actually come in the papers, as you would know. And that is the reason why this extra provision has been created.
Got it. So I assume you're talking about Mytrah Energy. So that essentially means that Mytrah has moved out of your restructured book and into your Stage 2 book. Is that correct?
So Mytrah was always into the Stage 2 book because, as you know, we are one of the bondholders at the holdco level. And there are several, I think, more than 25 lenders at the SPV level, and we had jointly done an OTR for Mytrah and put the assets or the company for sales, which was a year ago.
So then which loan that has now incrementally moved into Stage 2, if it's not Mytrah?
No. This is not incrementally moved to Stage 2. There are multiple assets that have moved stages, Piran. The particular asset you are talking about was already in Stage 2 as of December. There are some other assets that are moved to Stage 2 right now. And they also happen to be in the same sector that Khushru mentioned a moment ago, which is renewables and auto ones.
Got it. And it's interesting that our Stage 2 book is up some INR 700 crores, INR 800 crores, and we've made the same amount of incremental provision, INR 800 crores. So that's essentially like 100% loss during default.
No, that's just a coincidence. That's just a coincidence. That is not the way the numbers have been arrived.
The number -- as you have seen, the overall provision coverage at Stage 2 level has overall been increased. So multiple assets have been incrementally provided for. Some of those assets are near the sales proceed stage, as was mentioned before. And so they have -- the provisions there have been trued up to whatever the realizable values are that we are seeing in the market right now and some others -- the provision coverage has been increased. It's just a coincidence that the delta increase and the increase in provision happens to be roughly the same number.
Okay. Okay. Got it. And if I may just ask on the wholesale lending business, what is the status of the Omkar line that we talked on our books about 4 or 6 quarters back, and I think it was some INR 1,200, INR 1,300 exposure. Any status on that, please?
So first of all, let me just clarify that and I've said it last time also that please look at this as a real estate investment by the group. It's not a loan into the asset, which is in Andheri East. So let me tell you what is the status of that. The good news is that this COVID is behind us, being an SRA project, as you'll be aware, SRA was not allowing any provisions, et cetera, because of COVID, because of humanitarian grounds during COVID, but that has now gone away.
As we speak, in fact, the first phase as we call where it is jointly held by us and also Yes Bank, we are in the final stage of resolution where the entire project has been sold only as to become part of the buildings that will be completed. While we speak, there is a second parcel of land that we call Phase 2, which is also vacated. We are also in dialogues with other developers for monetizing the land or doing a joint development. So yes, the news in the last 3 months is that we have moved forward in terms of certain permissions and some -- in terms of negotiations also. But please look at this as a real estate project and not a loan.
Okay. So how much cash flow did we receive from our sale of the first phase?
So what is going to really happen, let me explain to you. Please look at the Phase 1 and Phase 2 together what we are planning to do. We are going to use the cash flows from the first phase to clear up certain portions of the second phase and also maybe partly the third phase. So look at it as an integrated project. Post the second phase, we will be adding a surplus, which will be quite substantial, which will take care of a substantial portion of our investment. And then, of course, we need to decide whether we want to do a onetime monetization [indiscernible] monetizing it in phases because you must appreciate this is a very large project. So the group will take a call phase-wise.
And who is the builder in the JDA?
So we being the owners of the land, in the first phase, we will be getting -- we have already tied up with a developer to complete the project. The second phase, we are already in the bid process with the other developers. So each phase could have different developers because certain portions of land would be commercial, certain would be residential. And this being such a large, we are looking at us as master developers and master planners and we will be allocating the phases to different developers.
Got it. And my last question...
Piran, I think there are other people also in the queue. Maybe you want to join the queue again.
[Operator Instructions] The next question is from the line of Abhishek Sharma from Jefferies.
I just wanted to understand the pharma guidance given -- in a bit more detail. So if I understand correctly, what you gave in terms of revenue growth and EBITDA margin was more of a medium-term guidance. I wanted to have more color on near-term FY '23 what kind of growth can we expect. Because of spillover, would it be more than 15%? Will it be lesser?
And also on the margins, this 25% to 28% trajectory, is it back ended? Do you expect to achieve it within FY '23 itself and if not, then by when?
So for FY '23 specifically, we are targeting growth in the high teens. In terms of margin, considering the current inflationary scenario and highly volatile environment, I don't think it would be prudent to make a guidance right now. So we'll keep that for later. But on revenue, we are targeting a growth of high teens.
So then is it fair to say that 25% to 28% margin guidance, this is more back ended? And do you have a time frame by when do you expect to achieve it?
So as we've stated in the past, it's over a 3- to 5-year period that we are targeting to achieve this margin range.
[Operator Instructions] The next question is from the line of Vinod Jain from WF Advisors.
Sir, this is more of a suggestion than a question. Whether you can have a Finance Day, like you have had a Pharma Day some years back to explain in detail the retail lending you are proposing to do in the affordable housing space?
Yes, it's very much on our mind. It is something that you should expect to see us go forward with. We just need to think through the timing in the context of the demerger that is coming about. But it's a good suggestion. It is something that we are seriously thinking about.
[Operator Instructions] The next question is from the line of Deepak Gupta from SBI Pension Funds.
I just want a clarity on this non-real estate exposure of INR 4,500 crores roughly. There's INR 2,300 crores, which have moved from stage 1 to stage 2 is a part of that INR 4,500 crores? And it does not include Mytrah Energy. Is my understanding correct?
Yes. So this is part of INR 4,500 crores non-real estate book and Mytrah is part of that INR 2,200 crores.
Okay. So okay, I thought Mytrah was already in the restructure -- so Mytrah already restructured, right? You would already have a 10% provision on that.
Yes. So as Mr. Jijina mentioned that, given that we are in the process of closure on some of these transactions, we felt that those transactions will need some more provisioning and hence, we have taken into that. This basically also indicates that the transactions are going closer towards closure.
Understand. So what is your current restructured book now?
It's same as we had mentioned last quarter. It's almost 3% of our wholesale loan book.
No, let me answer that. I think the restructured book, we have only 2 assets. One from the real estate, which was roughly around INR 170 crores, INR 180 crores and the other was Mytrah. So with Mytrah going away, the OTR asset will be only one, which will be in the restructured book.
Okay. Great. The second thing on the retail segment. Now I can see that disbursements have done quite well for the fourth quarter in the retail segment. But somehow the loan book has been flat on a quarter-on-quarter basis, if my understanding is correct, INR 21,552 crores. Last quarter also was outstanding loan book was INR 21,544 crores. So does it mean that the Dewan book is replenishing at a very fast pace? Or are you having repayments, prepayments on the Dewan housing book?
I think your observation is accurate. The AUM of the retail book has been broadly flat. It has actually increased by like 0.5% or something through on a quarter-on-quarter basis. We are seeing total customer-induced transaction of just under INR 500 crores a month. And we saw, of course, roughly INR 1,500 crores of disbursement. So that's why you're seeing roughly flat AUM. However, this is actually seen in the context of how the Dewan book is bound to grow and develop, right?
From the entire set of Dewan branches as more and more disbursements happen, the crossing of the lines between disbursement and attrition will take place, which has already taken place in March. So in January and February, the attrition amount was greater than our disbursement amount. In the month of March, our disbursement amount became significantly higher than attrition and has stayed that way since. And hence, you should expect that this trend of AUM growth is now starting to happen that will continue. In these first 6 months, we were seeing the full force of the attrition of the DHFL book, but only a very small part of the DHFL book was still originating disbursement. And hence, you saw the AUM pressure, we are now on the other side of that equation.
Sure. My third question thereon is on the fixed and floating rate mix for the asset side. I believe you've given in the presentation, 37% of the loan assets. So they are fixed for what duration. What is the duration of the loan book. And I suppose this would be real estate loans, which are fixed. These should be the wholesale loans which are fixed, I suppose.
You're talking about the asset side or [indiscernible]?
I'm talking about the asset side yes.
Yes. See, the asset side, you've got both wholesale and real estate in the fixed rate side. In the -- on the retail side, apart from housing and LAP business, pretty much everything else is going to be fixed rate. And they are -- you can imagine that all the fixed rate business that you are going to have is going to roughly of the 4-year kind of average maturity.
Understand. Understand. And the fourth question is, I believe we have taken an enabling resolution to INR 600 crores or NPD. And currently, our cost of fund is 9.2%. So do you think you'll be able to raise money at a lower coupon versus cost of [ 109.3% ].
It was mentioned a little bit earlier during the call that on an incremental basis, our coupon that -- at which raised fund in Q4 was roughly 8.5. Now let's see, the endowment keeps changing and some of the specific resolution on days without having a very specific idea of when we want to go to the market to rate. When the market opportunity is right, we will go on rate.
I will reiterate that our book today is extremely liquid. We have INR 8,000 plus crores of cash that is sitting on the balance sheet. So there is really no need for us to borrow anything significant in the short term. So we are very, very, very liquid right now.
Let me add Jairam's couple of points here to this. Number one, as Jairam said, that already we are sitting on high liquidity. Number two, I think you asked a question on the mix between fixed and floating on assets. I think on the liability side, in fact, we are 80% fixed and 20% floating. I think that we should take that also into account. The third is that, in fact, in the last 2 months rather than raising money, we have been actually prepaying the high-cost debt, with the high liquidity, which we have. And it continues to have with the wholesale also continuing to ramp down. So I think you should look at it in that context.
The next question is from the line of Bhaskar Basu from Jefferies.
I had a couple of questions. Firstly, the retail NPL of about 1%. Could you clarify does this pertain to the DHFL book or the new businesses which you have generated over the last 6 months?
So it's all going to be the legacy book, Bhaskar. The new book has not had enough time to get into NPA. So it will get there. It's just not there yet. So the book that you see is both the legacy book of DHFL, which over time for some part of the standard book will continue to flow. And also the small legacy book that was there in PCHFL, that's also a part of it will continue to flow.
In terms of slippage rates, these are very, very small slippage rates. So it's not really moving in any significant way. As far as the DHFL standard book is concerned, our model already predict a certain level of new NPA formation from the standard book of DHFL, which is totally priced in into the transaction. And what we have seen so far since September 30th has been entirely in consonant with what our models have predicted.
Any update on the recoveries from the off-balance sheet book in this context?
From the off-balance sheet book, are you talking about NPL recoveries, et cetera or are you talking about...?
Yes, about off-balance sheet NPLs of DHFL. From there you were expected to recover something.
Let me take this opportunity to explain the concept of POCI, which I hope some of you caught. We made a significant disclosure on this in the presentation. The POCI, which is purchased or originated credit impair is the book that we have created, and we have specifically disclosed. You can think of this. We have not used that phrase in our disclosure, but you can think of this broadly as a bad bank. Essentially, this is where all the stress part of the book actually goes and sits. So from DHFL, roughly INR 9,800-odd crores of face value of assets has been moved to -- or INR 9,500 crores of assets has been moved to this category called POCI. And it has been recognized on the book at a value of INR 3,500 crores. In other words, it has been marked down by 63%. So what we are saying is this "bad bank" is likely to have a loss-driven default of 63%.
Now, in the accounting standard, this POCI book will continue to remain in that POCI category forever. These accounts are never going to become stage 1 or stage 2 or stage 3. They are never going to become NPA. They're just going to remain in that POCI book forever. All the recoveries that we make sure will go towards either reducing the value of POCI or if our loss-driven default is lower than what was assumed in this 63% haircut, then it will come through our P&L.
So that's the way in which the DHFL stress book has been accounted for in our balance sheet right now. With that back now, let me just come back to talking about the recovery that has happened. In the 6 months, since we have -- since we have taken over DHFL, we have on a cash basis recovered INR 715 crores worth of loans from the POCI book. Of that INR 715 crores, roughly INR 425-odd crores has come into the last quarter, Q4. Of this INR 715 crores of that, some INR 430-odd crores has come from the NPA book of which there was about INR 7,000 crores or thereabout. And the rest has come from the non-NPA stress book. All of this sits in that POCI context.
So as you can see, from that overall POCI book, which is marked down by 63%, we have already recovered INR 715 crores. And that is reflected in both -- in some part in the interest income side and some part in the provision book.
Okay. That's very helpful. Just a second question on the guidance of 5 to 7x increase. And as we've seen, basically, the disbursements have been scaling up faster than the book growth. So how should we think about housing disbursements as a part of this INR 2,500 crore run rate? And how should we think about it from a perspective of book growth in housing?
So overall, we should assume that housing is going to be just under half of -- around half of the new disbursements that we do. And from a book growth perspective, we don't have specific guidance for the short term. But I think it's fair to assume that the overall book growth will be well north of 20%.
And just 1 last data keeping question, if I may. What was the write-off -- were there any write-offs during the quarter?
No.
The next question is from the line of Bharat Sheth from Quest Investment Advisors.
So on the affordable housing side, so can you give some color what is current size of the book? And how do we really plan to expand? And what will be the NIM that we are looking, I mean, our aspiration of the NIM in those books.
Yes. Yes, thanks for your question, Bharat. The -- if you look at the overall book of INR 21,000 crores, you will -- as things stand right now, roughly 70% of that is in the strategy that you would call affordable housing. So essentially, the housing book with less than INR 30 lakhs ticket size. The average ticket size of our housing portfolio is about INR 18 lakhs, right?
So pretty much the entire housing loan portfolio that we have is in the affordable category. The new business that we are originating in this segment, Bharat, we have to originated that in a yield of 11.25%. And so from there, you can calculate onto what the NIMs are based on whatever leverage assumptions that you want to assume, right? So 11.25%, Bharat, is the yield.
As you can see, it was meaningfully higher than what some of the prime customer in metro towns, et cetera, are able to get today for housing. And that's because the customer segment that we are going after is a segment that is less served by that and the properties are also less well understood by that. I think we are able to extract the kind of things.
Okay. Out of this non-RE book holdco of INR 4,500 crores, INR 2,200 crores is SMA fee, so how much further slippage are we expecting or space that we are seeing as of now in an overflow in next 1 year?
So last we left, there was a question about whether we expect any further slippages into Stage 2 or whether we feel we are appropriately provisioned for the INR 4,500 crore book, which is the non-RE structure lending holdco book that we spoke about before.
Our belief is that we are well provided right now. As we mentioned before, we will keep looking at seeding of assets and whether anything needs to change. For now, we feel very good about where we are with the increase that we did this time or this quarter on the provisioning side. We feel that we are fairly well provided.
The next question is from the line of Abhijit Tibrewal from Motilal Oswal.
So most of my questions have been answered and maybe the next 2 questions that I'm going to ask are not going to do anything that's not being discussed on this call today. But I just wanted to ask this for better clarity or understand this more holistically.
So the first question around -- I mean, this INR 4,500 crores of non-real estate book structure [indiscernible] holdco level clever. So I'm just trying to understand, I mean, like someone has also pointed out at the beginning of the call, just when we are thinking that -- you are all through COVID and you've managed it really, really well especially your wholesale loans. You have these [indiscernible] projects and you're having to take aggressive provisions on these loans.
Don't you think 5 months down the line, you're looking at in pharma demerger, wherein the expectation will be that the disclosures would have to kind of match up to what other [indiscernible]. So don't you think that over the next maybe 2 quarters, if it will be [indiscernible] to kind of recognize anything that you think could be stressed and maybe provide [indiscernible]. That's the first question.
The second question while our disclosures have meaningfully improved and I must complement your team for that and especially in the Financial Services side. But you still find it difficult to put on the various pieces of the puzzles together. So I mean, as in during in the call, we suggested that we're looking at something like a 40% to 50% kind of a disbursements over the next 5 years between the disbursements. And at least somewhere we also talked about loan book growth north of 20%.
So I mean, are we looking at -- I mean the consolidated AUM is growing at a 20% CAGR over the next 5 years? And how would -- I mean, [indiscernible] I understand 1/3 of the book being wholesale or [indiscernible] in the longer term.
And then lastly, I mean -- so let's say, 5 months down the line, then you are, I mean, required to maybe your financial services to end up in balance sheet. What is it that we have in mind right now. I understand it would be a difficult question. But what is it that you have in mind for the news? What would be the cost ratio is looking like any I mean on the Financial Services business, it would newer product segments that we're doing, what kind of credit cost can be there? And what kind of eventual ROE that you could be looking at [indiscernible]?
That's a lot of questions. But thanks for all of those, Abhijit. I appreciate your interest. Let's take your questions one on one -- one by one. Your first question was around INR 4,500 crores and kind of that's where we started, let's Khushru answer that, and then we'll take some of rest.
As I said, let me repeat this, that the major one, in fact, we just spoke a few minutes ago is Mytrah, where it was provided. And so it's not -- so I want to make that statement because you mentioned about disclosure. So it was not that we were aware and we are disclosing it now. Let me again go through this whole process of the major out of the 3, the other 2 being small, the big 1 is Mytrah. We have been always speaking about it. It was in stage 2. This asset was put by all the bondholders, including us and a host of public sector banks who were at the SPV level for sale for the last 1 year.
There was a big process, which was run by Barclays. And as we got to bid and finalized, we realized that we needed to provide more because the realizable value is less than what we had all expected. And that is why we are providing this. In fact, a major portion out of this onetime provision is on account of Mytrah. So it's not that we knew about it. It was provided before. It was in Stage 2 because we had done an OTR along with all the banks. However, unfortunately, the value realization is lower than what all the lenders expected. So I just wanted to make that point once again on this provision.
Let me then make sort of the broader point that you are asking, right, Abhijit, which is basically, as we move towards a Financial Services entity over the next few months, how do we think about disclosures, how do we think about cleaning up the book from a provision standpoint, et cetera. You made some really good points.
And I mean, clearly, we think similarly, you saw our actions this quarter. So that should reflect what our mindset is. We want to make sure that by the time we have a separately listed Financial Services stock, a few things happen. A, our disclosures are topnotch and that you are able to build a good feel for what the financial services business looks like; and b, that a lot of cleanup [indiscernible] if any that needs to be done has already taken care of. Please recollect that 2 years ago, we had taken roughly INR 2,000 crores of incremental provision on our book to take care of any contingencies that might arise out of COVID, et cetera.
In this quarter, when we have gone ahead and actually made these incremental provisions, we did have the optionality to actually dip into that big pool that was created a couple of years ago. We chose for exactly the reasons that you articulate, not to do that. We chose to make incremental provisions and take them through P&L and keep retaining the old provisions that were made 2 years ago, because we want to make sure that the balance sheet is fully robust and strong by the time we list as a separate entity.
So it is very much on our mind. We will continue to see us to behave in ways that are reflective of that desire to be -- to have a conservative or robust book when we left. Your second point was on disclosures. I'm glad you noticed we have -- a lot of our conversations, one-on-one, et cetera, we have been asking you all to tell us what you would like to see from a disclosure standpoint.
What you see this quarter, for the first time, you're seeing us disclose a lot of information on the FS side specifically, right, showing separately what our P&L is showing separately what the stage-wise classification is of assets, et cetera.
All the details about our POCI book. There is a lot of disclosures that we have tried to put in this quarter, which we believe will lay a good strong foundation for all of you to be able to start building robust models from a more firm starting point, right?
I understand that you will probably need more over time. And that's fine. We will continue to listen to you on what is most useful but hopefully, you find this a useful first step as we started off by saying. And hopefully, this will allow you to understand our FS business very deeply.
Our intent and desire, let me be very clear, is by the time we are a separate listed company, our intent and desire is to be fully caught up in terms of whatever we think is the best and most appropriate best-in-class disclosure that makes sense for our investors and to have a balance sheet which is adequately bullet proof by that time.
And lastly, if you could just guide on how are you kind of looking at the viewpoint of the financial services business?
Yes, the viewpoint of the financial services. So we've shown some balance sheet view, we have not shared a P&L view for the 5 years. Our thinking right now on this is that we are thinking that when we do a Financial Services Day that we were referring to a little bit earlier in this conversation, that might be when we actually talk to you all in a little bit more detail on that front.
As of now, what we are saying is and overall AUM doubling over 5 years. So that gives you a little bit of a sense of what the CAGR is going to look like. Also, the mix shifting from where we are today, which is 64%, 36% wholesale retail to 35%, 65% retail wholesale, right? That broadly where we are going. So from there, you can individually derive what the wholesale CAGR is going to look like and what the retail CAGR is going to look like.
On top of that, we have shared a little bit of what our expectation is on retail disbursement CAGR. So this should start giving you a little bit of a sense, which hopefully, it's a good starting point. Let's discuss more in detail as we get into the FS Day about what else might be useful on -- from a P&L standpoint.
The next question is from the line of Aditya Jain from Citigroup.
One clarification. The POCI book has nothing to do with fraudulent assets which are [indiscernible], right? So which is separate from those completely?
This is completely different from them.
The next question is from the line of Sachin Kumar from SBA.
And I have a single question. The Pharma division is I think contributed towards 50% to the overall profit of PEL, the overall revenue for PEL. So how did the company project PEL after carving out of the pharma business? And how PEL itself is another strong holding given the financial services in the pharma business. So how do the company...
Can you please repeat the question?
I just wanted to know how after the carving out the Pharma business, how do you project PEL in the next 5 years just as our financial services business.
So the intent, as you know, is to carve out pharma by the last quarter of this calendar year. And we have -- because we have shared separate financials for the FS business right now and you have the [indiscernible] as well. From there, you can derive what the -- what some of the financial metrics are. The structure from separation perspective is pretty straightforward one.
So the FS business, as it exists, along with the equity that is allocated to FS as well as what we have turned unallocated equity, all of that will stay in this entity of PEL, so which will hopefully with RBI's blessings turn into a regulated NBFC entity, and that entity along with all our lending business, the insurance business, the alternatives business and any potential inorganic transactions that we might do in the FS space in the future, to utilize some of the unallocated equity, will form the heart of the FS business, and that's the balance sheet P&L that you will see going live in the later part of this year.
Okay. So how much is the AUM we are targeting at for the next 5 years?
The AUM as we mentioned before, currently, we have a Financial Services AUM of INR 55,000 crores. And we have said that over a 5-year time frame, we are thinking -- we are building a business that will double this, right? We are not offering specific guidance for the next 6 months, if that's what you're asking about at the point of the demerger work, what will our AUM be, we're not offering specific guidance for that.
All right. And -- and I would also like to take this opportunity to especially congratulate the Piramal sir, for [indiscernible]. And I have 1 question for Piramal, sir. If -- I was going through an article where [indiscernible] mentioned about 10 years back that India as a country was not a suitable option for investment because of the [indiscernible] all those reasons. So has there been a change now like a change? And does it look [indiscernible] in India for the pharma business or expansion of the pharma business.
I think it is an investment for pharma business, but let's take this off the line. I think it's a longer discussion.
the next question is from the line of Piran Engineer from CLSA.
Just a couple of clarifications. When we mentioned about this 40%, 50% CAGR in retail disbursement, that's from the steady state INR 2,500 crores or INR 3,500 crores quarterly, right?
Yes, Piran, you're your -- you're putting it to -- see the way we have framed this year, Piran and we can talk more about it offline if you want. But the way we have framed it here is a 40% to 50% CAGR over FY '22 numbers.
Okay. Fair enough. And the second clarification is that this INR 2,500 crores DHFL book, POCI book. Is that part of the INR 18,000 crores we got from Dewan? Or is it over and above that? I am little bit confused here.
No, no, no. So basically, think about it this way, Piran, that we -- the transaction was for INR 34,000 crores, right? So we paid INR 34,000 crores, of which INR 14,000 crores was cash on the balance sheet, so remove that, that gets INR 20,000 crores. That INR 20,000 crores was allocated, roughly, as INR 17,000 crores in retail and INR 2,000 crores in wholesale.
Now you look at the book and then you say, okay, what is the face value of the retail book. And the face value of the retail book, including the NPA book there, et cetera, is, let's say, INR 25,000 crores. And against the INR 25,000 crores, if we are going to allocate something like INR 17,000 crores or thereabout, that essentially indicates that there is a big sort of haircut. The question is how will that haircut be allocated. The POCI book is a part of that INR 25,000 crore original DHFL book which was either already turned -- had already turned into NPA before we purchased the portfolio or was it deep enough stages of delinquency that our models suggested that they are going to become NPA any time soon.
So we took all that book, which is -- which we are turning originally credit -- originated as credit impaired and we actually got it on our books, and we put it into this firewalled category called POCI and said this essentially has become a bad bank. I'm going to massively haircut this fee. And then anything extra that I get out of that will essentially be P&L accretive. Otherwise, the rest of the book is essentially by good book. That's the way [indiscernible]. So it's all part of the DHFL transaction only, nothing different.
Over and above this INR 18,000 cores, INR 19,000 crores of loans you all took over on your balance sheet?
Yes. So there is also -- in case that's all in the confusion, there's an off balance sheet guidance of another 18-odd-thousand crores.
No, no, no, no. That was not a confusion. My only thing was that the book value of the loans that you all took over was INR 41,000 crores, INR 42,000 crores. And it came into your balance sheet as INR 18,000 crores, INR 19,000 crores, excluding on the cash, just the loan.
So that means a haircut of INR 23,000 crores, INR 24,000 crores, I wanted to know this INR 9,500 crores was part of the INR 23,000 crores, INR 24,000 crores or part of the INR 18,000, INR 19,000 crores. But I have got the answer.
Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Over to you, sir.
Thanks, everyone. In case you have more questions, please feel free to reach out to the team. Thank you.
Thank you. Ladies and gentlemen, on behalf of Piramal Enterprises Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.