Piramal Finance reported a 67% surge in net profit for the second quarter of fiscal 2027, driven by strong growth in its retail loan business. While brokerage Nomura has maintained a positive outlook citing a successful transition to a retail-heavy model, investors are monitoring specific risks, including early stress in southern India's mortgage portfolio.
Piramal Finance has reported a strong financial performance for the second quarter of fiscal 2027, with net profit rising 67% year-on-year to reach Rs 5.4 billion. The company’s growth is anchored in its strategic shift toward a retail-oriented business model, moving away from its historical focus on wholesale and large corporate loans. This transformation has allowed the company to expand its total assets under management by 24%, with the retail portion growing at a healthy rate of 30%.
As part of this transition, the company has been aggressively reducing its legacy wholesale book. This book has seen a 32% decline sequentially and now accounts for a minimal 1.5% of total assets, signaling that the company is close to completing the transition to its new business strategy. Brokerage firm Nomura has highlighted these efforts, retaining a positive rating on the company with a price target of Rs 2,550. The brokerage pointed to the firm's improved underwriting standards and contained credit costs, which stood at 1.1% on an annualized basis, as key reasons for the stable outlook.
Despite the positive growth, investors should be mindful of specific risks that the company is currently managing. Management has flagged isolated pockets of stress within its mortgage portfolio, particularly among IT sector employees in southern India. While these issues are currently confined to a specific geography, they remain a point of attention for the coming quarters. Furthermore, the company experienced a minor increase in overdue payments within its digital lending segment. To mitigate potential losses in this area, the firm relies on first-loss default guarantees, which cover 90% of that specific portfolio.
The company is currently trading at 1.4 times its one-year forward price-to-book value, a metric that investors often use to gauge whether a stock is priced fairly compared to its net assets. Moving forward, the key monitorables for shareholders will be the company's ability to maintain asset quality as it scales its retail operations. Investors will likely watch whether the early warning signs in the mortgage portfolio settle or if they lead to higher provisions in future quarters. Success will depend on the firm's ability to navigate these specific sector-level pressures while maintaining the momentum of its retail growth strategy.