Piramal Enterprises demerger: Brokerages bullish on counter on Piramal Pharma's record date; suggest buy for up to 30% upside

Piramal Enterprises demerger: Shares of Piramal Enterprises dropped around two and half per cent on Piramal Pharma record date. Piramal Pharma is the demerged pharmaceutical entity of Piramal Enterprises. Equity shares, proposed to be allotted by PPL (Piramal Pharma Limited), are expected to be listed on stock exchanges over the next 2-3 months, subject to necessary regulatory approvals. Piramal Enterprises' Board of Directors had approved the demerger of Piramal Ent and Piramal Pharma as two separated entities earlier in October 2021.  

As per the demerger arrangements, the company will issue 4 equity shares of Rs 10 each of Piramal Pharma for every 1 equity share of Rs 2 each to shareholders of Piramal Enterprises Limited. Piramal Enterprises will have a financial services business, including retail and wholesale lending, while Piramal Pharma, which will be relisted on exchanges after the demerger, will have a pharmaceutical and CDMO business.    

Meanwhile, brokerages have been bullish Piramal Enterprises, a company catering to other financial services.  

Global brokerage house Jefferies opined that pickup in retail disbursements, especially in housing, should lift loan growth. It feels the provisions would remain elevated in the near-term, however, recoveries from POCI book should cushion the impact. Saying that the risk-reward in the counter looks positive, it maintained a buy on Piramal Enterprises.  

"Lending book trading at 0.7x FY23e BV, implying positive risk/reward. We maintain a buy and raise target rice from Rs 1155 to Rs 1250," it said.  

Meanwhile, ICICI Securities echoed Jefferies stance and said, within the financial services business, traction in retail segment has been better than expected. "It has unveiled wholesale lending 2.0 with focus on mid-market residential projects in tier-1 cities and focus on top 15-20 tier 2/3 markets. It will also pursue smaller ticket corporate non-real estate loans at the operating company levels," it said.  

Explaining the rationale behind its bullishness, ICICI Securities said PEL has outlined its 5-year aspirations wherein it is targeting to double AUM in 5 years until 2027, grow retail disbursements at 40-50% CAGR over 5 years.  

Key risks remain any further sign of stress in non-retail portfolio after having disappointed in last couple of quarters and lower than expected RoE accretion from retail business. 

Factoring demerger of Pharma business, ICICI Securities maintained a buy stance on Piramal Enterprises with target price of Rs 1391 per share.  

Shares of Piramal Enterprises dropped nearly two and half per cent to Rs 1036.60 in BSE intraday trade on Thursday. It translates into over 30% upside on previous closing price of the stock on Tuesday.