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Piramal Enterprises looks extremely weak on longer term charts!!

Piramal Enterprises Limited


Piramal Enterprises Limited (PEL) is one of India’s large diversified companies, with a presence in Financial Services (~54% of revenue), Pharmaceuticals (~36% of revenue) and Healthcare Insights & Analytics( ~10% of revenue).

While Ajay Piramal, Chairman of PEL may have a well established track record in building and scaling successful businesses, PEL’s stock price has been under pressure for almost a year.


Structural changes in 2016 such as demonetization and introduction of RERA followed by GST and changes in the 2017 budget which limited the losses that tax payers could claim as a set-off against income, to Rs 2 lakh, has weighed down the growth of PEL’s financial services business.

Three of the five real estate funds launched by Piramal Fund Management appear to be in a mess.  In the last 1 year, PEL has sought extensions on 3 of its schemes and all of these funds have invested in the Mumbai projects of Ariisto Group which is facing court proceedings under the Insolvency & Bankruptcy Code

Extension of India Reit Scheme-IV since 35% of the initial investment made ( of ~75 crores) is stuck.

Extension of India Reit scheme- V (invested ~200 crores ) since the company has been able to fully exit only four (and partially get out of one) out of the 10 investments.

Extension of India REIT Mumbai Redevelopment Fund (IMRF) (invested ~ 125 crores) aimed to capitalize on projects that were into slum rehabilitation in Mumbai. Three of its four projects were executed by the same builder – Omkar Realty & Developers. As per fillings made by the company in March, The fund had recovered only a part of its investment, but the update talked about an “inordinate delay in slum clearance” as well delays in getting height approval due to the project’s proximity to Mumbai airport.

Fears around the PEL group started due to its heavy exposure to Lodha (3180crs), Omkar Realtors (2623crores) Wadhwa (2588crs), etc. They plan to bring down their exposure to these companies below 15% of net worth by the end of FY20.

In the non financial services sectors, investments and acquisitions in Global Pharma and Healthcare Analytics business which were funded by debt may have contributed to revenue but they are yet to contribute materially to the bottom line. Going forward, The company is also expected to demerge the financial services business in the near term which is currently operated as wholly owned subsidiary of Piramal Enterprise Limited.

In FY19, Interest expense jumped from 2978 crores in Fy18 to Rs 4410 crores in FY19. As a result, profits declined by ~76% and consequently, RoE declined from ~22% to ~5% in FY19.

The company is in the process of raising 8000-10000 crores for Piramal capital (subsidiary that houses the lending book) this fiscal via Long term loans, ECBs and sale proceeds from Shriram Capital inorder to leverage growth and to take advantage of consolidation in the NBFC sector. The company is focused on reducing its exposure to real estate wholesale lending and move towards Retail, SME and consumer lending.

A significant part of the company’s standalone debt is due in FY20. In the past, the company has managed to refinance its debt and raise funds. However, the current liquidity crises in the NBFC sector, might impact their financial flexibility.

While the company is considered to be financially sound, but unlil it brings down its exposure in real estate wholesale lending significantly, the stock will continue to face downward pressure.

Technical View

The stock is down 60% from the highs of 3308. The sharp fall in the counter is clearly hinting at weakness. Lower tops and lower bottoms on the weekly charts is an indication of a down trend. Since this is a weekly chart the intermediate trend of the stock is down according to Dow Theory. Fibonacci analysis is further indicating weakness in the counter. The Fibonacci zones on the charts are coming from the first lower high at 2761 and that means the stock is contracting. This week it broke the Fibonacci confluence zone of 1445-1414 and that spells more trouble for the counter. The trend line joining the supports is pointing at an immediate support for the counter some 50 points down. Since the counter has always bounced off it the probability is very high that it will again repeat the same. The 61.8% of the entire swing comes at the Fibonacci confluence zone of 1086.70-1035 levels. Therefore this will be the crucial zone for the counter.  The weakness in the counter is clearly indicating that this zone will be tested. If the bulls are unable to defend this zone then the stock will enter the bear phase. The Fibonacci zones coming from the first higher low is clearly indicating that the stock is contracting and hence   the rallies in the counter should be utilized to exit.

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