Piramal Finance profits rebound and capital adequacy improves; JPMorgan maintains Overweight on bonds
Pre-tax profit for the quarter ended September rose 58% quarter on quarter, helped mainly by lower provisions. Equity financing also supported capital adequacy amid rapid expansion, but changes to insurance commission policy could weigh on future earnings.
Original source：J.P. MorganFirst published on Unhidea：Original source date：
Key takeaway
Piramal Finance’s earnings and capital position improved as its business expanded. JPMorgan maintains its Overweight rating on the bonds maturing in 2028, though further catalysts may be limited after the rating upgrade.
What drove the profit rebound?
In the second quarter of fiscal 2027, the quarter ended September 2026, pre-tax profit rose 58% quarter on quarter to 5 billion Indian rupees, after falling 31% in the preceding quarter. Provisions fell 34% quarter on quarter to 3 billion rupees, an important reason for the profit rebound.
Pre-provision operating profit rose 6% quarter on quarter to 8 billion rupees, supported mainly by a matching 6% rise in net interest income. The net interest margin remained at 6.5%. The average cost of borrowing fell for the third consecutive quarter, declining 1 basis point quarter on quarter to 8.79%.
The growth businesses’ return on average assets under management rose to 2.0%, above 1.8% in the preceding quarter and 1.7% a year earlier.
What supports rapid expansion?
At the end of September, assets under management had risen 6% quarter on quarter to 1.131 trillion rupees. Within the growth businesses, retail assets rose 7% quarter on quarter to 975 billion rupees and wholesale assets rose 6% to 140 billion rupees. Legacy assets fell to 1.5% of total assets from 6% a year earlier.
Management reiterated its guidance for 25% year-on-year growth in total assets under management in fiscal 2027 and expects assets to double every three years, implying 1.5 trillion rupees in fiscal 2028.
During the expansion, the company replenished capital through 38.5 billion rupees of equity financing, lifting its consolidated capital adequacy ratio by 1.25 percentage points quarter on quarter to 20.1% at the end of September. Following the financing announcement, Moody’s upgraded the company by one notch to Ba2 in September and changed the outlook to stable.
How could insurance commission changes affect earnings?
Management estimates that, if the Indian insurance regulator’s proposal takes effect on 1 April 2027, a decline in total insurance commissions could reduce return on assets by approximately 18 to 24 basis points in fiscal 2028.
Piramal sells life insurance through Pramerica Life Insurance, a joint venture in which it holds a 50% stake. Management believes that the natural hedge and income recapture from consolidation, together with measures such as adjusting sales incentives, can cushion part of the earnings impact.
Why does JPMorgan maintain its Overweight rating?
JPMorgan believes that a favorable operating environment, improving profitability and currently sound asset quality support credit fundamentals. It therefore maintains its Overweight rating on the bonds maturing in 2028; the report lists a yield to worst of 6.6%.
The bank also notes that further upside catalysts may be limited after Moody’s upgraded the rating last month. Deteriorating asset quality is the main downside risk, but no signs of deterioration are currently apparent.
