Piramal Enterprises Ltd

NSE:PEL

Ladies and gentlemen, good day and welcome to the Q4 FY 2025 earnings conference call of Piramal Enterprises Limited. [Operator Instructions]

The results material has been uploaded on the company's website and you may like to download and refer to them during the discussion.

The discussion today may include some forward-looking statements based on the management's expectations that are subject to uncertainty and changes. These must be viewed in conjunction with the risks that the business face.

On the call today, we have with us Mr. Ajay Piramal, the Chairman; Mr. Anand Piramal, Director; Mr. Rupen Jhaveri, Group President; Mr. Jairam Sridharan, CEO, Retail Lending, and MD, Piramal Finance; Mr. Yesh Nadkarni, CEO, Wholesale Lending; Ms. Upma Goel, CFO; and Mr. Ravi Singh, Head of Investor Relations and Strategy.

And now I hand the conference over to the Chairman, Mr. Ajay Piramal for his comments. Thank you, and over to you, sir.

Good day, everyone, and thank you for joining us today on this call. With the Q4 F '25 results, we take a stock of our full year performance versus the growth -- versus the goals we set ourselves at the start of the year. It is also an opportunity to look back on how far we have progressed in our transformation journey in the last 3 years.

I'm happy to report that we met all the stated objectives for FY '25. We said, we will get our legacy AUM from INR 14,500 crores at the start of the year to below INR 7,000 crores, and we ended the year with INR 6,920 crores of legacy AUM. This is 9% of our total AUM. We also spoke about expected gains of INR 1,700 crores from AIS recoveries over 2 years.

In the current year, we were able to recover AIF book of INR 1,600 crores with gains of INR 926 crores. We expected the AUM growth for FY '25 at about 15% year-on-year net of legacy AUM run down and the growth AUM scale-up and our total AUM of INR 80,000 crores. We delivered an AUM growth of 17% to a total AUM of INR 80,689 crores at the end of March.

We wanted to move our retail wholesale mix from 70-30 at the beginning of the year to 75-25 by the end of the year. We have ended this year with the Retail-Wholesale mix of 80-20. We also put a target of getting a OpEx to AUM of the growth business, a key driver of our profitability, down from 4.9% in the last quarter of FY '24 to 4.6% in the last quarter of FY '25. We did significantly better with an OpEx to AUM of 4% for the growth business in the quarter 4 of FY '25.

If we take a longer-term view also, the last 3 years have been transformational for the company. Our growth AUM consisting of Retail and Wholesale 2.0 have grown at a 50% CAGR in the 3 years from about INR 22,000 crores to about INR 74,000 crores now. The share of growth AUM in total AUM increased from 34% to 91% in the same period. Our legacy AUM is down from INR 43,000 crores to INR 6,900 crores in these 3 years.

We believe a reduction of this scale in the wholesale book in such a short time period is perhaps unprecedented in industry. While running down the legacy book and investing in new businesses, we were able to protect our networks. Except for dividends and a share buyback, our network has remained broadly unchanged at about INR 27,000 crores.

In these 3 years, we have also greatly simplified our corporate structure. We demerged Pharma in September 2022. Currently, we are at final stages of merging Piramal Enterprises with our subsidiary Piramal Finance.

We also monetized about INR 6,300 crores from our noncore investments in the last 3 years. There is still significant embedded value in our balance sheet where we have visibility of crystallizing it over the next 1-2 years.

With the merger of PEL and Piramal Finance, a tax shield of INR 14,500 crores in assessed carry-forward losses will be available. This could make our PBT equal to our PAT for several years in the future. There are further monetization and recovery opportunities from our Shriram General Insurance and Life Insurance investments and the AIF books.

We also expect to receive deferred consideration of about USD 120 million in FY '26 for the sale of the Piramal Imaging business in 2018.

With change in the business mix, consolidated AUM growth and NIM have constantly been increasing over the last 6 to 8 quarters. Similarly, our consolidated net profit has become more stable in the last 5 quarters versus a volatile phase we underwent between 2 and 3 years ago.

In FY '25, we just reported a consolidated net profit of INR 485 crores versus a loss of INR 1,685 crores in FY '24. Our growth business made a PBT of INR 896 crores in FY '25. Both our retail and wholesale businesses had a strong FY '25, meeting their respective plans and we are now well positioned to build upon the platform and leverage the investments that have been made.

As we come to the end of our transition journey of the last 3 years, we are excited about the opportunity ahead of us to cement our position as an at-scale financial services company with consistent and superior earnings growth.

In FY '26, we expect to deliver an AUM growth of about 25% year-on-year, taking our total AUM to more than INR 1 lakh crores. This will be driven by our growth AUM which grew at 36% year-on-year in FY '26 and should grow at about 30% year-on-year in FY '26.

Retail should form 80%-85% of our total AUM in FY '26. The legacy AUM should further decline to INR 3,000 crores to INR 3,500 crores in FY '26 and be negligible in the context of our overall balance sheet size.

The increase in our gross business profits and realization of the embedded value in our balance sheet would drive strong earnings growth in FY '26. We currently expect the FY '26 consolidated PAT of more than INR 1,300 crores versus a profit of INR 485 crores we reported in FY '25.

Once again, I thank all the investors and analysts for their support and useful feedback from the years amidst dynamically evolving markets, customer expectations, economic, global, technological and regulatory landscape, we are focused on execution and delivery on our plans. The journey of the last 3 years has given us everyone confidence in our capabilities.

With this optimism, I hand over to Jairam, Yesh and Upma to share more details on our performance and plans.

Over to you, Jairam.

Thank you, Chairman, sir. Good evening, everybody. It has been a strong quarter and a strong year for our retail lending business. At the end of March 2025, the AUM of our Retail business stood at INR 64,662 crores, a growth of 35% year-on-year. In the post-quarter of FY '25, our disbursement at INR 9,754 crores were up 9% year-on-year.

Disbursement in unsecured products were slowed down further and were down 1% Y-o-Y compared to secured products, which were up 22% Y-o-Y.

Our flagship mortgage business comprising housing loans and lower-grade property grew by 34% year-on-year to INR 43,850 crores. Mortgages account for 54% of the total AUM of the company and 68% of retail AUM. Our mortgage book has exhibited robust asset quality in the last 3 years with a stable 90-plus delinquency ratio of around 0.5%.

Slide #15 on our investor presentation shows that amongst the specialist affordable housing finance companies where data is available publicly, we are not only amongst the largest lenders, but we are also able to grow much faster than what we have said.

We believe this has been made possible by our distribution efficiency and our High Tech plus High Touch business model, which marries on-ground presence with our tech and AI/ML capabilities.

In other Retail products, used car loans AUM were up 91% year-on-year and salary personal loans AUM were up 93% year-on-year. We continue to go at that slow on disbursements in business loans and digital loans. AUM for business loans were still up 22% year-on-year while digital loans AUM were down 24% year-on-year.

Overall, retail asset quality remains healthy. If you flip over to Slide 24 in the investor presentation, you will see that the 90-plus days past due delinquency rate of our business at 0.8% remains within the narrow range that we have maintained consistently over the last 3 years.

The next page, Slide 25 in the presentation, shows vintage risk trends across various products. We have received multiple requests on this chart in the past and we have incorporated that feedback this time. So, this time you will see that we are showing vintage risk using 90-plus days past due at the 12-month mark as opposed to the 30-plus days past due at 3-month mark which we used to show the last quarter.

You will notice that the trend on improving asset quality of new franchises continues to remain the same. A diversified multi-product portfolio approach provides us the flexibility to actively navigate any product-specific cycle while keeping overall asset quality healthy.

Within unsecured businesses, microfinance, which we classify within our business loan segment, which has the sharpest deterioration in the last 6 quarters, 90-plus days past due in microfinance remains at 6.9% on a much reduced AUM size. Microfinance is now about 1.5% of retail AUM. The rest of the products continue to witness benign delinquency trends.

Slide 26 in the presentation shows how our credit scorecards have been effective in managing credit risk. Customers rejected by Piramal, who end up getting loans elsewhere are seen to have risk which is 2.8x that of the customers that are models approved. In the last 4 months of FY '25, we have seen noticeable improvement in operating parameters of asset quality.

Credit costs in Q4 FY '25 stabilized at levels very similar to Q3 FY '25. This is in spite of some upward adjustments we made in PCL rates during the quarter. Asset quality metrics and unsecured ex-microfinance appear to have peaked in Q3.

Microfinance likely saw a peak in Q4, including the impact of upward PCL adjustment. Secured lending products continue to remain largely stable. As shown on Slide 19, our customer franchise grew by 24% year-on-year to 4.7 million customers. We have been able to capture a significant portion of our customer origination for future cross-sell opportunities.

During FY '25, we were able to significantly increase the share of cross-sell disbursements in our unsecured lending disbursements to about 30%. From a distribution standpoint, we now have a network of 517 branches across 428 cities in 26 states.

In FY '25, we opened 27 branches versus about 90 branches per year that we used to open in the prior 2-years. Our focus this year has been on raising productivity of existing branches and increasing the number of product offers per branch.

Slide 20, 21, and 22 in the presentation show these dynamics and the resultant improvement in our branch productivity and employee productivity, which leads me to OpEx ratio. We have continued to see strong outcomes in our OpEx to AUM ratio.

If you flip over to Slide 23, you will see that over the last 8 quarters, we have consistently reduced our retail OpEx to AUM ratio from 6.5% in Q4 FY '23 to 4.3% in Q4 FY '25. We aim to continue this trend in line with our medium-term guidance of 3.5% to 4%.

Our performance in lowering the retail OpEx to AUM ratio consistently has been slightly better than what we expected and what we guided at the beginning of the year. This is thanks to the investments that we have made in technology, both traditional and generative AI making significant headway across risk management, operating leverage, productivity, and the controls infrastructure among other areas.

On Slide 28, 29, and 30 in the presentation, we have highlighted some of the successful use cases that we have been able to execute on traditional and generative AI in our businesses.

Also, as you see on Slide 23, an accounting policy change at the earliest part of the year in Q1 on processing fees impacted the reported retail fees in this year. On a life-for-life basis, underlying cash fee collected but not yet booked stands at 0.6% of AUM.

Adjusted for the change which should normalize over the coming year, AUM yield in retail has been broadly stable. We have undertaken multiple new innovation initiatives in FY '25, which you will find displayed on Slide 31, 32, and 33. These include the launch of a micro lab business, major progress on our direct assignment and full lending program, and rising customer engagement, particularly through digital channels.

Over the last few years, Piramal has built the foundation of a strong retail lending business. We have refined our execution rigor. We have successfully navigated a tricky credit risk environment. We are confident about the continued steady scale-up of our multi-product retail lending business with consistent improvement in operating leverage and stable asset quality through the cycle.

With this, I hand over the call to Yesh to talk about the wholesale business.

Thanks, Jairam, and good afternoon, everyone. FY '25 has been a very active year for the wholesale business too. As chairman alluded to earlier, we were able to reduce our legacy AUM by 53% year-on-year to INR 6,920 crores, which now occupies a much smaller part of our balance sheet at 9%, and will, therefore, be a small contributor, smaller contributor, rather, to payment going forward.

During this year, we saw the companies of some of our lumpy loan assets, and I'd like to note that the credit costs associated with this complex asset economy were adequately covered by the direct economy gains, which were broadly in line with the equity guidelines we had provided towards the beginning of FY '25.

Going forward, we'll continue to pay around this book. We expect this book to reduce to INR 3,500 crores by March 2026. We also had a productive FY '25 for Wholesale 2.0 business, or our new business in the wholesale side. During the year, we disbursed INR 7,192 crores in new wholesale book across real estate and mid-market lending strategies. This was an increase of 22% year-on-year in origination.

Origination per loan was INR 60 crores during the year, while disbursed amount per loan was INR 47 crore, thereby signifying the granularity with which we are building this business in that.

The portfolio has an understated size of INR 70 crore and an effective interest rate of INR 14.4 crore, featuring a very balanced asset duration and diversification. We continue to see strong pavements across real estate and CMML segments and will grow this book in a calibrated manner through FY '26.

Wholesale 2.0 AUM was INR 9,117 crore as of March 2025, which was year-on-year growth of 44%. While this was strong year-on-year growth, it nevertheless was tempered due to significant repayment pressures faced by both real estate and CMML segments.

E-payments were almost 45% of amounts disbursed during the year, signifying better-than-expected performance of the book, which continues to benefit from strong sectoral performance and quality partner and asset management. Since the inception of the new wholesale lending business about 2.5 years ago, we have not experienced any delinquency in the portfolio.

With this, I'll hand over to Upma to take through the financial performance.

Thank you, Yesh. Good evening, everyone. Moving to our financial performance, in Q4 FY '25, we reported consolidated net profit of INR 102 crores versus INR 39 crores in Q3 FY '25. FY '25's net profit stood at INR 485 crores versus loss of INR 1,684 crores in FY '24.

In Q4 FY '25, pro forma profit before tax for growth business stood at INR 306 crores versus INR 212 crores in Q3 FY '25. This translates to PBT-ROA AUM of 1.8% in Q4 FY '25.

For full year FY '25, per forma PBT for growth business was INR 896 crores versus INR 1,044 crores in FY '24. In FY '25, growth AUM grew by 36% year-on-year to INR 73,777 crores.

Operating profit grew by 34% year-on-year to INR 1,889 crores. In FY '25, growth business credit cost was at 1.6% versus 0.8% in FY '24. Credit cost X for CD copies and other dealings was 1.9% versus 1.4% in FY '24.

Our total GNPA and NNPA ratios stand at 2.8% and 1.9% respectively. Our net worth stood at INR 27,966 crores, with a capital-added basis ratio of 23.6% on consolidated transition basis.

In Q4 FY '25, our cost of borrowing moderated by 10 basis points quarter-on-quarter to 9.1%. We are also actively diversifying our borrowing mix and securitization at international borrowing share stands at 19% from 6% in March '24.

Our fixed-to-floating-rate debt rate has improved to 43:57. The fixed-floating gap between assets and liabilities has now been mostly legalized to align the balance sheet better with a declining rate environment.

With these remarks, I would now like to open the floor for questions. Thank you.

[Operator Instructions] We will take our first question from the line of Shreya Shivani from CLSA.

I have 3 questions. First is on the legacy book. Congratulations on bringing down the book as had been stated earlier. Now, one of the things that I can see is that a major reduction in the book has come from Stage 2 and Stage 1 and the F security receipts.

You set a target of another, now bringing it down to INR 3,000 crores to INR 3,500 crores. If you can help us understand what will remain in that INR 3,000 crores to INR 3,500 crores, will your majority of that would be lands and receivables and you will try to remove as much of the Stage 1 and 2 and SRs as possible. That is my first question.

My second question is on the Wholesale 2.0 book, you had mentioned that the prepayment rate was elevated. I wanted to understand, is it that the prepayment rate was elevated or we have seen more of refinancing and borrowers exiting to other lenders. If you can help us understand and from which segment specifically?

And my third question, you have given a target pact for next year of INR 1,300 crores or INR 1,500 crores or something like that for FY '26. You had also mentioned about the Piramal Imaging, the one-time concentration coming through Piramal Imaging. How much money would come in, what could be the timeline and is that included in this pact or some color on that would be useful.

That's a lot of questions. I will try and answer the first 2. My short answer to your first question is we expect the recovery to be broad-based across different categories, across sort of loan book, security fees, obviously air and the non-performing part of the book. The problem side will be made on the land side, but the effort will be actually to bring the reduction across the book and that is how the project will be spent.

To answer your second question, the prepayment has been again broad-based. Most of the prepayments have occurred because the underlying projects have performed much ahead of the underwriting, and therefore the cash generated by the projects has been used to prepay for the principal. It has been broad-based across the portfolio as opposed to certain loans getting re-filed and therefore being lumped in. Same is true for CMML book as well.

Yes, CMML book as well. This is not a refinance story, Shreya. This is actually client cash flow which is actually paying us back and some of it is also coming from capital markets because the equity capital markets have done so well. A lot of the promoters are able to raise money, raise primary equity and use that to repay a bunch of debt. That is a phenomenon we have seen a lot in the last year in the corporate book.

On your third question on profit guidance, yes, we have guided to a profit of INR 1,300 crores to INR 1,500 crores in the coming year. This is on a control basis, Shreya. So, there are lots of puts and takes here. The gain from the negative transaction that you mentioned is one of them. There are kind of potential hazards from some of the reduction of the legacy book. There are a lot of these one-offs. All of it is included in that INR 1,300 cores to yes, there are areas of recoveries, other recoveries from our old books. There is a lot of stuff that takes in there. There are a lot of moving pieces in the P&L here and that is why we wanted to offer a sense of stability in terms of a centralizer around where we believe on a control basis the company's profitability is going to last. We ended this year at about INR 485 crores and we expect next year to deliver between INR 1,300 crores and INR 1,500 crores.

We will take our next question from the line of Vivek Ramakrishnan from DSP Mutual Funds.

Congratulations. So, here are my questions and even I have a lot of questions. So, in terms of -- you manage to switch on and switch off various products and grow your retail business there. And so, I just wanted to know what is the ticket cost there and Microlab is looking like a bit of the flavor of the month. Everybody is increasing Microlab. So, does your credit model show any dangerous signals or segments that you would avoid in Microlab? That is question number one.

And the second question is a follow-up to the previous question only in terms of profits because increasingly, your ROE from your core business is going to become more and more important. So, is there excess profits from, let us say, imaging or other recoveries and setups that are there? Is this INR 1,300 crores, the way you have taken the core profits or would it be profits which include the other stuff also because you could very well use the profit, I mean, be tempted to use the profit to write off the balance, INR 3,500 crores also which is still will be left toward the end of the year. Those are my questions.

Yes. So, Vivek, thank you for your comments and for your good wishes. I think, yes, we have had some success in accelerating and decelerating products appropriately to keep our overall delinquency and credit cards fairly stable in India.

In general, if you see the business loans environment overall, it has not been the greatest. Q4 was actually good compared to Q2 and Q3. So, Q4 things got better.

So, I think it ended the year kind of a lot better than what it was looking like in the middle over. So, the slog overs were actually pretty good, as far as this business is concerned. Let us see whether that continues on into Q1 or not. I think it is a place to watch.

Microlab is a very small business. It will remain a small business for a while. We do want to invest in this place. Building new businesses is a 3 to 5-year journey. So, we are in no hurry to build this business. So, we are absolutely not trying to ride a wave here.

This is a space where you will see a big investment and slow and steady growth. You know, if you see a get to like a INR 1,000 crores or INR 1,500 crores AUM, by the end of next year, that will be probably a very big thing. So, we are not going to go berserk on this stuff much at all. So, we will see how the market plays out.

On your other question on profitability, I want to reiterate that INR 1,300 crores to INR 1,500 crores is all in, everything. All the positive one-off, the negative one-off, everything put together at a consolidated basis, promptly you should expect INR 1,300 crores to INR 1,500 crores.

Now, if the positive one-off are a lot more, that gives us an opportunity to accelerate further some of the run downs that we are thinking about. We will probably do that. We have told you in the past and we have shown some of the metrics and shared some of it in this forum that historically we have had between 25% to 30% head in reducing the legacy book.

So, if we are going to reduce the legacy book from INR 7,000 crores to INR 3,000 crores or even further, there is something implied there. So, all inclusive, we do believe that INR 1,300 crores to INR 1,500 crores we will deliver. I do not want to get into the confluence of each of that just yet because there are too many moving pieces and many of them will play out differently.

And our strength over the last year and a half has been that we have been able to navigate ups and downs appropriately and we have been able to place a delivery that is bold to us. And we will see what deliveries we face in the course of the year and we will play it accordingly. What we are guiding is that from an outcome standpoint, we will deliver an outcome of INR 1,300 crores to INR 1,500 crores.

We will take our next question from the line of Kunal Shah from Citigroup.

Yes. Sorry. So, few questions. Firstly, again touching upon the guidance, just within this INR 1,300 crores to INR 1,500 crores, what is the growth, businesses, contribution that we are looking at? Maybe obviously you have indicated there could be one option in terms of the sales plus the headcount, but broadly when you are giving this specific number, what are you putting it for growth business?

We delivered about INR 900 crores of profit, I think INR 895 crores of profit from growth business this year. Growth business is expected to grow at about 30% Y-o-Y from an AUM standpoint, give or take, that is what we're guided. So, you should broadly expect that from an earning growth as well on growth, growth business side.

Okay. So, you are saying broadly ROE is remaining stable in the growth business. So, if I have to look at PBT-ROA AUM even at say 1.4, 1.5, which was there in FY '25, you are saying broadly that might continue?

We are not guiding very specifically on that. But we will see as the year goes, you saw that we ended the year at 1.8. So, of course, it was a very strong end of the year. So, I do not want to make that the benchmark, but you do see that we had some really strong quarters as well in there. So, depending on kind of what the strength of the year looks like on the growth side, we will appropriately use one-off for legacy assessment.

Yes, but broadly even around INR 900 crores, if we take like 30%-40%-odd growth, that itself could be like is still closer to like almost like INR 1,200 crores contract income of the growth businesses.

Correct.

Okay. Got it. Got it. Perfect. And secondly, in terms of the wholesale trade cost, if we have to look at this particular quarter, would it be fair to assume that it was like INR 300 crores was the growth businesses trade cost and INR 220 crores odd or maybe INR 220 odd crores to be the wholesale trade cost and this INR 220 crores to INR 230 crores, would that be the assumption?

Yes, yes.

In spite of the trade loan loss provision.

Most of the growth -- the growth businesses had about INR 300 crores of trade cost, the rest of it is all in the legacy side. In the legacy side, you have also seen recoveries from the AIF, et cetera. So, all that has also gotten neglected out there.

Yes, yes. So, after this recovery, in fact, there would have been like INR 230-odd crores of wholesale trade cost which would have been booked in this quarter.

Correct. Correct. Correct.

Got it. Got it. And lastly, in terms of this entire associated income of INR 90 odd crores, which is broadly driving this entire thing, how should we look at this? Maybe that may be going up quite significantly out there. So, what is this and is it like one time or this is going to continue just out of INR 102 odd crores, INR 90 crores is associated income, yes?

Yes, see, some of our associated income does tend to be a little bit higher in Q4. So, there is a little bit of that going on. We had a better quarter in our insurance activity than what we bought. Our alternative business has done well. So, that is what we are seeing. There is a little bit of quarterly seasonality that is embedded in there. Please do not annualize it. Please do not annualize what is on Q4.

The only thing was out of INR 102 crores, like INR 90 crores come in from insurance, subsidiary and alternative businesses. And eventually, if we have to look at it, maybe the growth plus the wholesalers, that has hardly contributed INR 10-odd crores for the quarter.

Yes. So, Kunal that is the way we have managed the quarter, right? We have shown you the full growth profitability for the full year, about INR 900 crores. And we have used, as and where possible, we have used any gains that we had over and above what we thought were kind of core requirements, we have used to actually bring down the legacy book. And that is the story and the trajectory that we will see continuing in the times to come as well.

[Operator Instructions]

Okay. Guys, while we are waiting for the next caller to come, I want to clarify a small errata that we just noticed. We will try and correct it and just kind of connect with Kunal's question as well.

On the associated income in Page 46 in the investor presentation, it shows Q4 profit from Pramerica Life at INR 82 crores and from Alternatives at INR 8 crores, those numbers are swapped. So, you should assume that those numbers are swapped. We will create the errata soon. Apologies for this error, but we just noticed it. Thank you, Kunal for asking the question because it pointed us in that direction.

We will take our next question from the line of Kishan Rungta from Emkay Global.

So, I wanted to understand like how do we see the cost of fund trajectory going forward because we have seen 10 bids moderation this quarter and given the rate cycle, RBI rate cycle, how do we see our cost of fund shifting going forward?

Yes. So, I will break this into 2-parts. One is the trajectory of cost of borrowing and the second is the trajectory of cost of funds. Cost of borrowing, we expect slight moderation through the course of this year. There is a certain amount of our borrowing which is directly linked to market rate where we have already seen some benefits coming. Even by the end of April, we have started seeing some moderation in those rates, but a lot of our other borrowing is linked to bank NPLR, et cetera, which have not yet changed and I expect those changes to come around June, July, August time frame, which is when we will start seeing some of the benefits onto our P&L.

So, my expectation is that, if only in the later part of the third quarter and in the fourth quarter that we will see all our bank borrowing rates actually be benefited from the rate cycle, but through the rest of the year, the market linked borrowing should indeed give us some benefits.

Given all of that situation and kind of slight delays in transmission of rates at the bank's end, I expect cost of borrowing to moderate through the course of the year anywhere between 10 and 20 basis points.

However, the cost of funds for us will remain roughly flat to where we are right now, because our leverage will also continue to increase in this period, because we are a very low leverage company right now, and we expect the leverage to increase quarter-on-quarter. I think these 2 effects will largely net each other off and hence cost will probably remain flat even as COP will continue to come down.

Fair enough, sir. So, this is like since we have home loan in lap, because some of the benefit has to be passed on. So, what would be the net impact on the lends on the margin fund?

We do expect that our margins to expand slightly. In general, first of all, only 50% of our lending is variable rate and even within that a lot of them we have some delay in terms of reset dates, et cetera. And we are moving, by the way, more and more of our assets to fixed rate. As we speak, our customers are slightly less sensitive to fixed versus variable in some buckets. So, we will see us make that move.

In general, NBFC customer bases tend to see margin expansion in declining rate cycles. I do not want to speak too much about our specific strategy here, but I don't think that dynamic is going to change in this cycle.

We will take our next question from the line of Vinod Jain from WF Advisors.

First of all, congratulations on the improved working. My only question is related to the view on Pramerica insurance business and the related mutual fund business...

Vinod, can you use your handset more please? Your audio is not very clear.

Yes, I think, I heard his question. Vinodji, I think if you are -- I think you are asking us about Pramerica and what our strategic view is on that business. Firstly, thank you for your kind words on the performance of the company.

On Pramerica, we are a 50-50 joint venture partner in this business with Prudential U.K. and India is a strong market and an under penetrated market for life insurance. We do believe in the long run there is a lot of value here. However, we also have a lot of other users for capital, which are competing and they are very strong users that we have.

As you heard, we are expecting a 25% growth in our AUM next year. So, our Lending business is growing quite strongly as well. So, we need to keep all options on the table in terms of trying to figure out what the best use of capital is.

So, working closely with our joint venture partner, we will discuss what the right opportunities are. And as shareholders, we promise you that, we will be good stewards of the long-term value of the capital and we'll do whatever is in the long-term interest of the fund.

And what about the related mutual fund business? Is that also to be viewed as, I mean, would you focus on the growth of that business also?

We do not have any change in a mutual fund business right now. It's an interesting business for financial services in India and penetration is increasing. However, it's not a business of immediate interest to us right now.

We will take our next question from the line of Sarvesh Gupta from Maximal Capital.

Sir, first question is on the credit cost. So, this year we have seen a sharp jump on the pay. So, that picture is not being adequately displayed by when we see the days past due data and the origination data. So, were there any run-offs in this credit cost for this year? Or are there some specific segments which led to this sort of a 3x jump in the overall growth business credit cost?

So, go to that chart. So, Sarvesh, if you see Page #9, please. Page #9, if you look at the bottom left chart, you will see our credit cost data. You can see 3 lines there. The top most line, this is the core credit cost of the growth business, right, which is X of some of the gains that we made from the old demand bad book, the so-called POCI book or the POCI book.

X of that, if you see that orange line, that line is being relatively stable. It used to be 1.9%, then it went down to 1.4%, it is back at 1.9%, nothing much has happened there. The dotted line, which is the net-net credit cost of the growth business has indeed gone up, but that's more because the POCI book has or everything that needed to be recovered has largely gotten recovered and its proportion and contribution to the book has actually declined.

From a credit cost perspective, we've had a very stable year in financial years right now. We have not had any jerky movements. We have not had any significant dramatic delta in credit cost.

Going forward also, we would expect this 2% sort of a credit cost trajectory?

We have not guided specifically on that, but that's a good assumption.

Okay. And secondly, on the Wholesale 2.0 model, so what is the sort of aspiration? Because it's a small book right now, and it's doing well, but going forward, how much, at what pace do we want to grow that book?

See, we have been building this book up now for the last 2.5, 3 years, as I mentioned earlier, right? We believe that there is a market gap. And we believe that therefore we can actually build the business in a calibrated manner, which will contribute significantly as we go forward from here, to the frontiers.

I think our objective is that the right mix for wholesale, retail would be in the range of 20-80 and that is where we would want to be as we optimize this business going forward.

You will also note that, it has been a remarkable performance of the Wholesale to business from a credit perspective over the last 2 years and that is the advantage of having a mixed portfolio is that you can accelerate and decelerate different pockets of the business based on where credit is doing well.

Right now, wholesale credit is doing extraordinarily well. It might or might not continue, so let us not jinx it, but right now, it is a good environment. And we have been able to demonstrate good growth there. However, we will keep our ears very close to the ground and play it as per the market condition.

And sir, lastly, how do you look at the overall leverage in the balance sheet? Because right now, we are at INR 75,000 crore loan and we are already at a net worth of INR 27,000 crore. Now, there are some one-off spend transactions, et cetera for which the money is due to come.

So, it might make your network even more bloated in the coming years, thereby reducing the overall ROE, et cetera as we look into the company. So, is there any plan to give back the money or reduce the capital at the company level? Or can the business adequately sort of leverage itself to grow to meaningful ROE?

I point your attention to Page 42 in the presentation. And the top right chart on Page 42 shows how the leverage ratio on a gross and net basis has moved in the company over the last 1 year. You will see that over the last year, our debt to equity has gone from 2x to 2.4x. We have said in the past as well that we would probably never go past 4x, but there is still a ways to go for this metric to keep rising.

Now, can we return capital to shareholders? Returning capital to shareholders in financial services companies in India is relatively complicated. There are only 2 ways of returning capital. One is dividends and the other is a buyback.

Buybacks are largely not feasible for financial services companies because debt net equity is greater than 2x and sitting homes do not allow it. But on dividends, you did hear, our dividend announcement today, we have announced a dividend of INR 11 per share and a payout ratio of 50%.

So, we are going to the max level that we can in terms of paying dividends because that's the way for us to return capital to shareholders. Your point is absolutely right that we are a little bit over capitalized and we should strive to return some capital to shareholders, but regulatorily our options are somewhat limited. And we are using to the fullest the one option that we have, which is dividends by paying 50% payout ratio, which is the max we can.

And this type of a payout will continue, is it?

No. Let me -- we'll have a clear year-by-year. See, the leverage ratio is one thing that you want to monitor. You also want to monitor, where our capital adequacy norms are, where the growth opportunities are and whether the monies are better utilized internally.

50% is the highest we are regulatorily allowed to pay and this is obviously the highest that we have ever paid in terms of payout ratio in our history. Typically, we have seen more than 30%, 35%, right? Let us see what happens next year.

[Operator Instructions] Next question is from the line of Mohit Jain from Tara Capital Partners.

Yes. Sir, how should we look at the growth rate for the unsecured business going forward? I believe you said, the credit cost in microfinance is almost peaked in this quarter. So, going forward, both in terms of disbursement as well as AUM growth, how should we look at the unsecured business?

I think FY '26 will be higher than FY '25 in terms of growth rate and unsecured. I think, we've had some severe challenges in at least, I would say, 2.5 quarters out of 4 in this year. And if you look at Slide 7, for example, you will see how both in digital and business loans, we have had to go super slow in this year.

Digital, at least our confidence has increased a little bit. And so you might see us accelerate a tad on that front. On business loans, probably not yet, maybe another quarter of watching it before we get going. But in general, my expectation is that growth and unsecured will be higher in FY '26 compared to FY '24, both in disbursement terms and in AUM terms.

And sir, how do you think that is going to affect the NIMs going forward? Because I believe you also talked about NIMs once, but if you can just put your view considering the fact, the growth in the unsecured is going to be at the faster pace and obviously, we will have the advent of the rate. So, how do you look at the NIMs position?

See NIMs, I mean, the increase in unsecured in the coming year is not going to affect NIMs this year. It will affect NIMs in the future, but in the immediate year, it does not make a difference, because it will not change proportion of AUM.

In general, we would like to be about, I want to say 4 to 5 percentage points higher on unsecured in our contribution to AUM compared to where we are today. Over the next couple of years, I don't know how confused the next coming year is going to be on this, but generally we would want to be 4 to 5 percentage points higher than where we are.

And that is obviously, NIMs accretive in the future, but make no mistake, it is not going to affect NIMs this year at all. These things only impact the year after.

Understood. And sir, just one final follow-up. On housing loans, that we have been hearing it's getting very competitive obviously in the prime segment in which we don't operate. But as an extension of that, the other segments are also going to get more competitive.

So, do you think there can be a situation in which we may end up focusing more on the, let's say, margin part as compared to the growth or which is more going to be more important?

If you look at Page 15, where we have shown the data on housing, you will notice that on a year-on-year basis, our disbursements actually haven't grown in housing. We are in the 11.6% segment, so our disbursement yield is 11.5%. And you will notice, if you go back to the last 2 or 3 quarterly presentations that we have consistently been around 11.5%. So we have not budged on the rate just to gain some growth. So we have stuck to the disbursement yield that we need. And if that means disbursement growth is not there, so be it, right?

And so far, it has been okay, because last year, we have able to grow reasonably well. And so on an overall basis in mortgages, we have been able to deliver 12 plus percent from an overall yield perspective, and it's something that I'm reasonably comfortable with.

Yes, housing -- particularly this less than INR 25 lakh housing loan are going through a little bit of a challenge from a growth rate standpoint, but these things are cyclical. I'm sure it will come back, especially, if Pradhan Mantri Awas Yojana takes off, I'm sure it will come back, but last year wasn't it. Let's see whether this coming year, it does any better.

[Operator Instructions] I now hand the conference over to Mr. Jairam Sridharan for his closing comments. Over to you, sir.

Thank you very much. I say thank you very much to all the participants for participating actively in the call for all your great questions. We've had a great year as a company and a strong quarter in somewhat of a give time.

As we have guided for the coming year, we are looking forward to strong year in terms of both growth and profitability, as well as the resolution of some of our historical legacy assets.

Looking forward to your continued engagement and support in the course of the coming year. Have a great evening, everyone, and thanks for participating.

Thank you. On behalf of Piramal Enterprises Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.