Overview:
- The company maintains a low debt equity ratio of 2.6, with a recorded ratio of 1.74 in the previous year.
- Wholly owned subsidiary of Piramal Enterprises Limited
- It has been rated AA by care ratings.
- The company exhibits a high capital adequacy ratio of 27%, which was 22.3% in the last year.
- GNPA stood at 3.5% for the year, while it was 2.3% in the preceding year.
- The company experienced negative profit due to a significant amount of goodwill being written off. However, it achieved a positive return on equity of 2.5% and 13% in the two years before that.
- There has been relative stability in financials since the acquisition of Dewan Housing Finance Ltd. in January 2021.
Details
This wholly-owned subsidiary of Piramal Enterprises Ltd is registered as a housing finance company with the National Housing Bank (NHB). It is engaged in various financial services businesses. The lending portfolio of PCHFL has predominantly been wholesale, with a high concentration on the real estate segment.
The latest available yields while writing this on PCHFL’s securities are 8.75% for the one maturing in May-26 and 200 basis points higher (one basis point is 0.01%) for the one maturing in Sep-31. With a fall of 3% in AUM (Assets Under Management), the Gross Non-Performing Assets (GNPA) is 3.5%. Taking a lagging denominator to remove the effect of this year’s loans becomes 3.4%, which is a credit-positive.
With a very low debt-to-equity ratio of 2.6 and 1.74 during the year preceding this, the short-term risks associated with financial leverage can be ruled off. Being a wholly-owned subsidiary, the strong parental support is again, a credit positive. PCHFL maintains a high Capital Adequacy Ratio of 27% and 22.03%, which is very high compared to the minimum requirement by the RBI of 15%.
Conclusion
The longer-term yields do look attractive, but due to the recent amalgamation with Dewan Housing Finance Ltd and the historical record of high debt equity ratio (before the merger) of an average of 10.6, it can become a cause of concern when considering the security maturing in 2031. The shorter duration paper is an almost perfect fit in the high-yielding part of a diversified debt portfolio.
Disclaimer:
"Investment in debt instruments carry inherent risks, these are our opinions and we
advise prudence while taking any investment decision"