- Growth business shall be 100% off lending business- which means Wholesale 1.0 will be completely run down, and all lending revenue will be based on the growth business.
- Smaller legacy businesses shall aid in the cost of funds.
- SR reduced by Q1- Cash realisation of 1400
- AIF- 340 cr cash realised plus interpretation of AIF circular- write back of 1600 cr
Approx 3000 cr of provision run down
- 1400 of markdown of fair value markdown on non-earning assets
- Large stage 2/3 - 1000 cr settlement of account by taking settlement
- Provisioning buffer of 700 cr for future provisioning
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Adjusted this against a similar amount from a one-off gain. This is beneficial to PEL in the long run and for the lender.
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Wholesale 1.0 down from 44k to 14k cr- Book down by 30k, but credit costs 9000 cr in the last two years. lGD (Loss Given Default) is 30%. In the future, LGD could work on the remaining book- It is up to individuals to estimate it.
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First, low-hanging fruits are disposed of. The last part is very difficult and risky. The most problematic fruits are left behind.
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For PEL- Some of the large assets are out. A large account has gone out this quarter.
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Retail growth will be slower going forward as compared to Fy24.
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Run down is adjusted against undervalued or no valued assets. Hence, we thought of doing a run down by taking haircuts. One net basis net worth remains the same at the same time, taking a run down.
My view
Fee income—I’m not sure what is propelling fee income. Is it retail or wholesale 2.0 lending? How sustainable is this?
Another set of accelerated run down for wholesale 1.0. This term refers to the gradual reduction of a particular type of lending. They have mentioned this many times. As far as I understand (please feel free to correct), they have made similar statements at the start of FY24, in Fy23 and every year in the last 2/3 year. There is nothing conservative about their provisioning. IN Q3-24, they said we were done with provisioning and within 3 months, came up with 3000cr of write down. Based on the call, it looks like another set of 4 to 5000 cr provisioning is remaining (assuming 30% LGD on 14k wholesale AUM)
INR 67 bond (My limited understanding)- which is converted to cash 1/3rd per year. This is a kind of dividend but in a different format. They have reduced the dividend amount from Rs 33 to Rs 10. I am still figuring out why there is such a drastic reduction in dividends, but they are distributing the money to shareholders in a different format. For example, INR 67 bonds will be converted to cash 1/3 - INR 22 per year INR 10 dividend, which means around INR 32 dividend for FY24 and possibly for the next 2/3 years.
PEL has done a massive amount of bad lending in the last 5/6 years. Shareholders have paid a massive price for earlier management (confident but stupid, which massively increased wholesale lending at 25/30 CAGR before COVID). They will not acknowledge it openly, but the results from the last 2/3 years make it very obvious. They have buried their bad practices under the hood of DHFL, but they come every few quarters with accelerated wholesale provisions with a promise that they are reaching the end of the tunnel. The only silver lining is Wholesale1.0 is reducing much faster, so hopefully, they could recoup some of their losses.
INR 10k losses assets. Looks like PEL is unlikely to pay any taxes for the next 3/4 years even if they report 2500 cr PAT every year. This will help return ratio improve faster going forward.
Note: invested
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