Five years after acquiring Dewan Housing Finance Corporation (DHFL), Piramal Finance has gained more than Rs 3,000 crore from its stressed loan book and retained Rs 16,000 crore in tax losses that it can set off against future profits.
DHFL was the first financial services company to be resolved under the Insolvency and Bankruptcy Code (IBC). Piramal completed the acquisition in September 2021.
Chairman Anand Piramal told analysts during the company’s Q2 FY27 earnings call on October 19 that the gains from DHFL’s stressed loans, tax benefits and low-cost long-term borrowings had made the acquisition a success.
“In every possible way, this merger has proven to be a transformational one for the company,” he said, describing it as arguably the most consequential financial services merger in India.
The DHFL acquisition gave Piramal Finance a retail mortgage business and a real estate lending portfolio. Since then, the company has expanded into more than 10 product categories, covering secured and unsecured retail loans and lending to mid-sized companies.
Its Growth business, which excludes the legacy loan book being wound down, has grown nearly fivefold in five years, from Rs 23,000 crore at the time of the merger to Rs 1.1 lakh crore. Its branch network and employee strength have tripled over the same period.
The company now serves 6.5 million customers through 838 branches, mainly in semi-urban areas.
Piramal said long-term, low-cost, fixed-rate borrowings inherited from DHFL continue to help keep its funding costs down.
Most of the assets on the merged balance sheet at the time of the acquisition have since run off. The legacy assets under management (AUM) fell Rs 780 crore, or 32%, from the previous quarter to Rs 1,673 crore at the end of September. The book now accounts for just 1.5% of total AUM, down 69% from a year earlier.
Yesh Nadkarni, CEO of wholesale lending, said the sharp reduction in the legacy book during the September quarter had no impact on profit before tax.
The company still holds provisions of Rs 459 crore against potential losses from the legacy book. With the portfolio now small, Piramal Finance plans to stop reporting it separately after the December quarter.
Recoveries from the legacy book continue to support earnings. CFO Vikash Singhla said the company booked a gain of Rs 90 crore from such recoveries in Q2. This helped bring the overall credit cost down to 1.1% from 1.8% in Q1, even as the credit cost for the Growth business stood at 1.5%.
Managing director and CEO Jairam Sridharan said gains from recoveries in the legacy book were being used to build buffers against potential losses elsewhere in the portfolio.
The gradual run-off of the legacy book is also expected to improve the company’s overall margins.
Piramal Finance’s net income margin stood at 6.5% in Q2, compared with 6.8% for its Growth business. Asked whether the overall margin would move closer to the Growth business level as the legacy book shrinks, Sridharan said this was “mathematically… bound to happen”.
He also described the shrinking legacy book as a natural hedge against rising interest rates. The company’s upgrade to an AA+ credit rating provides another cushion.
Piramal Finance reported consolidated net profit of Rs 545 crore in Q2 FY27, up 67% from a year earlier. Its profit for the first half of FY27 crossed Rs 1,000 crore.
Total AUM rose 24% year-on-year to Rs 1,13,112 crore, while the Growth book expanded 30%.