Piramal Finance Earns AA+ Rating, Eyes Lower Funding Costs

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AuthorAnanya Iyer|Published at:
Piramal Finance Earns AA+ Rating, Eyes Lower Funding Costs
Overview

Piramal Finance has secured a new AA+ long-term credit rating from CRISIL, a move management expects will gradually reduce its borrowing costs. The company remains on track for over 25% AUM growth and its 7% net interest margin target by FY27, while confirming no immediate need for fresh capital or stake sales.

Funding Cost Outlook

Piramal Finance has been assigned a new AA+ long-term credit rating by CRISIL. Managing Director and Chief Executive Officer Jairam Sridharan indicated this rating is expected to gradually lower the company's cost of funds. He clarified this is a fresh rating from a new agency, not an upgrade of existing AA ratings from ICRA and CARE Ratings.

Sridharan highlighted the significant difference in borrowing costs between AA+ and AA issuers. He noted a potential 100 basis point gap in the bond market and 50 basis points in the loan market. Piramal Finance anticipates a weighted average benefit of 50-80 basis points as its existing borrowings are refinanced over time. This financial advantage is crucial for a lending institution.

Growth and Profitability Targets

The company reiterated its guidance for asset under management (AUM) growth exceeding 25% for the full fiscal year, noting it ended the second quarter at 22%. The target of achieving a 7% net interest margin (NIM) by fiscal year 2026-27 also remains intact. The improved credit rating is seen as a supportive factor for reaching these profitability goals, potentially sooner than anticipated.

Capital Position and Asset Monetization

Piramal Finance currently holds a capital adequacy of 20.5%, indicating a strong buffer. Sridharan stated the company does not require fresh capital at present and is not keen on equity dilution at current valuations, which are trading around 1.3-1.4 times book value. Transactions at higher valuations could be considered in the future.

Regarding asset monetization, Piramal Finance has exited its stake in Shriram Life Insurance at approximately 2 times valuation. The company retains holdings in Shriram General Insurance (14-15%) and Pramerica Life (50%). Management expressed no urgency to sell these remaining stakes, preferring to wait for appropriate valuations, especially as recent insurance deals have fetched 1.5x to 2x embedded value.

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