Was thinking about PEL’s profitability metrics as % AUM for FY23 and trying to see where they could go from here in FY24
FY24
Net total income as % AUM for FY23 = 6.75% (NTI = Total income – total interest & fee related costs; Ignored 700Cr one time income from Shriram). In FY24 with yields expanding via retail and assuming borrowing costs, can come down by another 60-75bps from 8.6%, the overall NTI should be able to expand by 1.5-2% IMO. So NTI as % AUM would be say 8.5%
Guidance for opex costs = 3.5%-4% (Retail share increasing)
Most generous assumption on credit costs = 2%
PBT as % AUM = 2.75%
PBT as % B/S Assets = 2.4% (Assuming same ratio of total assets to AUM in FY24 as in FY23)
PAT as % B/S Assets = ROA = 1.8%
Assuming leverage increases from current 1.6x to 2x, ROE = 5.5%
What valuation should be commanded by a lender doing 5.5% ROE at the peak of the credit cycle with 1/3rd book still being in mid to big ticket RE? PEL seems cheap for a reason. Happy to hear and learn from contra views.
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