Piramal cuts short-term borrowings, reduces dependence on CPs as NBFC crisis lingers

Piramal Enterprises chairman Ajay Piramal in his address to the shareholders in the FY19 annual report said the company continues to build resilience by further strengthening its liability and asset side.

Mumbai: Default by a large financial services player on its debt instruments has forced Piramal Enterprises to shift its borrowing mix to longer-term funding sources, and significantly reduce dependence on commercial papers, a top company official has said.

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Piramal Enterprises chairman Ajay Piramal in his address to the shareholders in the FY19 annual report said the company continues to build resilience by further strengthening its liability and asset side.

"In September 2018, the default by a large financial services company on its debt instruments resulted in a sector-wide liquidity tightening. As a result, banks and mutual funds resorted to a cautious approach towards financing NBFCs," he said without naming IL&FS which went belly up in that month. This, he said forced them to look for longer-term funds and not short terms sources like CPs or CDs.

Recognising the negative sentiment on NBFCs, the company has shifted its borrowing mix towards longer-term sources of funds and significantly reduced the dependence on CPs from Rs 18,000 crore in September 2018 to Rs 8,900 crore in March 2019, he said.

It also raised Rs 16,500 crore, which is nearly 30 percent of its loan book, via NCDs and bank loans between September 2018 and March 2019.

"We continue to diversify our loan book and increase its granularity, as we aim to lower the overall risk profile. Wholesale real estate exposure has come down from 83 percent in March 2015 to 63 percent in March 2019, excluding hospitality and lease rental discounting," he said.

Noting that several NBFCs saw their loan books stagnate or shrink in the second half of FY19, due to funding constraints, he said, "despite this, their loan book grew 34 percent to Rs 56,624 crore and fresh disbursals of Rs 29,762 crore during the year, of which Rs 11,241 crore were disbursed in H2. In addition, we received re-payments worth Rs 16,658 crore during the year, nearly half of which in H2."

The company's financial services business delivered good returns of nearly 19 percent for FY19, despite the continuous de-risking of the loan book and fund raising in the previous year, he said.

On the performance of the pharma business, he said their differentiated business model has delivered sustained revenue growth despite pricing pressures and regulatory concerns that impacted the industry.

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During the year, its domestic pharma business grew 11 percent to Rs 4,786 crore, while global pharma business crossed Rs 1,000 crore in operating profit with a margin of 23 percent.