Piramal Enterprises: Few positive synergies to emerge for biz model

Piramal Capital and Housing Finance’s resolution plan was duly approved by CoC of Dewan Housing Finance (DHFL) by majority voting as the successful one, inching Piramal Group (PEL) closer to claiming its rights over DHFL’s franchise. We await specific contours of the deal to gauge financial implications and value accretion. Nonetheless, few positive synergies emerge for the business model. If the deal consummates, strategic portfolio diversification intent (towards 50:50 wholesale to retail mix) will be achieved sooner; reduced dominance of wholesale portfolio can help ease the borrowing cost; multi-asset retail digital lending can get further fillip from the existing DHFL franchise; and unallocated net worth of ~Rs50-60billion can now command some optional value (utilised towards retail business ramp up). Better-than-anticipated revival in real estate sentiment, scale up of retail providing advantage of diversification and reduced concentration risk and optional value from this deal lead us to PEL value of Rs2,028 (earlier Rs1,470). Key risks, litigation by other contenders on bidding outcome can defer the process; and higher mark-down on acquired portfolio.

The way forward towards inking the deal: Piramal, Oaktree Capital, Adani Capital were the contesting bidders for DHLF’s acquisition — though individual bidding involved several specific qualitative and quantitative dynamics. After CoC approved Piramal’s bid and with voting being notified, the resolution plan needs to be approved by NCLT and regulators for the deal to go through. We are awaiting the specific contours of the deal with respect to the mode of recovery to creditors (through upfront cash, debt conversion, interest capitalisation etc). Also, given the developments through the bidding process, there is likelihood of contenders filing litigation against the bidding outcome and dragging it to the court.