Piramal Enterprises Q1 FY26: Is Their Staggering 170% Profit Growth Hiding a Catch?
Piramal Enterprises Limited (PEL) has always been a company to watch, especially as it navigates a significant strategic pivot. Its Q1 FY26 (June 2025) earnings presentation, released in August 2025, offers a compelling narrative of transformation and growth. In a period where the broader Indian market saw a July correction due to weak earnings and global uncertainties, PEL’s numbers stand out, but as ever, the devil is in the details.
The company is firmly executing its strategy to become a retail-led Non-Banking Financial Company (NBFC), moving away from its legacy wholesale exposure. This aligns well with the current investment landscape in India, which favors domestic-growth themes, including banks and infra-led cyclicals, amidst strong projected GDP growth and easing inflation.
The Retail Revolution Continues: AUM Growth & Strategic Pivot
Piramal’s strategic pivot towards retail lending is clearly bearing fruit. The company reported a robust 22% year-on-year (YoY) and 6% quarter-on-quarter (QoQ) increase in its Total Assets Under Management (AUM), reaching ₹85,756 Cr in Q1 FY26. This performance puts PEL firmly on track to meet its ambitious FY26 target of 25% YoY AUM growth.
The retail engine is firing on all cylinders, with Retail AUM surging by an impressive 37% YoY to ₹69,005 Cr, now constituting 80% of the total AUM. This is a testament to the “High Tech + High Touch” model, which leverages digital solutions for efficiency while maintaining a strong branch presence to tap into India’s underserved Tier 2/3 markets. Product segments like LAP (up 67% YoY) and Used Car Loans (up 73% YoY) show particularly strong momentum.
Equally encouraging is the growth in the Wholesale 2.0 AUM, which grew 47% YoY to ₹10,425 Cr. This new wholesale book focuses on granular real estate and Corporate Mid-Market Loans (CMML), diversifying away from the concentrated developer financing of the past. The average ticket size of ₹74 Cr further underscores its more diversified nature.
Crucially, the legacy book continues its managed decline. Legacy AUM reduced to ₹6,327 Cr, an 85% drop since March 2022, staying on course for the FY26 target of ₹3,000-3,500 Cr. This systematic de-risking is vital for improving the overall asset quality and perceived risk of the company.
| Metric (₹ Cr) | Q1 FY26 | Q4 FY25 | Q1 FY25 | YoY % | QoQ % |
|---|---|---|---|---|---|
| Total AUM | 85,756 | 80,729 | 70,069 | 22% | 6% |
| Retail AUM | 69,005 | 64,887 | 50,388 | 37% | 6% |
| Wholesale 2.0 AUM | 10,425 | 9,720 | 7,092 | 47% | 7% |
| Legacy (Discontinued) AUM | 6,327 | 6,122 | 12,589 | (50%) | 3% |
Note: Figures for AUM mix might vary slightly based on specific reporting exclusions (DA/Co-lending).
Behind the Numbers: Revenue & Operational Efficiency
The strong AUM growth translated directly into a healthy increase in Net Interest Income (NII), which rose 25% YoY to ₹1,010 Cr. This is a solid performance, driven by increased lending volumes. The company’s AUM yield remained stable around 13.6% for retail and 14.5% for wholesale, indicating that growth is largely volume-led. A notable positive is the stabilizing and now falling average borrowing cost, which stood at 9.12% in Q1 FY26. This trend, if sustained, will positively impact Net Interest Margins (NIMs) in future quarters.
Piramal is also demonstrating impressive operational discipline. Operating expenses (Opex) for the growth business, when viewed as a percentage of AUM, continued their downward trend, reducing to 4.2% – a significant 230 basis points improvement over nine quarters. This focus on efficiency, supported by AI and agentic solutions for productivity and risk management, bodes well for future profitability.
Unpacking the Profit Surge: Earnings & Provisions
The headline Consolidated Profit After Tax (PAT) for Q1 FY26 tells a story of remarkable growth, surging 52% YoY to ₹276 Cr and an even more striking 170% QoQ. While this looks exceptionally strong, a deeper dive into the provision line reveals a nuanced picture.
| Particulars (₹ Cr) | Q1 FY26 | Q1 FY25 | YoY % | Q4 FY25 | QoQ % |
|---|---|---|---|---|---|
| Interest income | 2,504 | 2,011 | 24% | 2,381 | 5% |
| Less: Interest expense | 1,494 | 1,205 | 24% | 1,417 | 5% |
| Net interest income | 1,010 | 807 | 25% | 964 | 5% |
| Other income | 227 | 167 | 36% | 377 | (40%) |
| Total income | 1,237 | 973 | 27% | 1,341 | (8%) |
| Less: Operating expenses (Opex) | 812 | 703 | 15% | 783 | 4% |
| Pre-provision operating profit (PPOP) | 425 | 270 | 58% | 557 | (24%) |
| Less: Loan loss provisions & FV loss / (gain)² | 202 | 30 | 531 | ||
| Profit before tax | 301 | 248 | 21% | 116 | 159% |
| Reported net profit / loss after tax | 276 | 181 | 52% | 102 | 170% |
The significant QoQ jump in PAT is largely attributable to a substantial reduction in loan loss provisions, which stood at ₹202 Cr in Q1 FY26 compared to ₹531 Cr in Q4 FY25. This reduction was partly aided by a “positive impact of about ₹105 Cr” from ECL rebalancing in Q1 FY26, as noted by the management. While dynamic provisioning is part of an NBFC’s operations, this quarter’s PAT received a clear tailwind from this adjustment.
Furthermore, a closer look at the Provision Coverage Ratio (PCR) for Stage 3 assets reveals a declining trend. For total assets, the Stage 3 PCR dropped from 35.7% in Q4 FY25 to 29.3% in Q1 FY26. Even for the growth assets, Stage 3 PCR decreased from 40.2% to 34.0% QoQ. While the company is actively managing its credit costs and risk, a falling PCR alongside reduced provisions for a quarter that sees significant profit growth warrants careful observation. It suggests that while asset quality may be improving, the degree of buffer against potential future losses has been somewhat reduced.
PEL’s full-year FY26 PAT target of ₹1,300-1,500 Cr implies an average quarterly PAT of ₹325-375 Cr. Given the Q1 PAT of ₹276 Cr and the aforementioned provision tailwind, achieving the upper end of this target will require sustained high NII growth and/or continued benign credit costs in the upcoming quarters. This makes PEL a “fast grower” with strong “turnaround” elements, but one where the quality of earnings growth needs ongoing scrutiny.
Navigating the Balance Sheet: Asset Quality & Capital Structure
Overall Gross Non-Performing Assets (GNPA) remained stable at 2.8% QoQ, but Net Non-Performing Assets (NNPA) saw a slight increase to 2.0% (from 1.9% QoQ). This slight uptick in NNPA, despite stable GNPA, is consistent with the lower provision coverage.
The retail segment’s asset quality (90+ DPD) remained stable at a healthy 0.8%, which is a positive indicator for the core growth business. Wholesale 2.0 also maintained zero delinquencies. The ongoing reduction of legacy assets is critical for overall asset quality improvement.
In terms of capital, PEL remains well-capitalized with a capital adequacy ratio of 19.3% in Q1 FY26, though this is a noticeable drop from 23.6% at FY25-end. The proposed merger with Piramal Finance Limited (PFL) is expected to reverse approximately 245 basis points of this reduction, indicating a planned rebalancing. The company’s debt-to-equity ratio stands at a manageable 2.5x (gross) and 2.2x (net), supported by strong liquidity, as evidenced by a consolidated LCR of 672% (well above the 100% regulatory requirement). A diversified borrowing mix and stable domestic credit ratings further bolster its financial health.
The Road Ahead: Merger & FY26 Outlook
The proposed merger of Piramal Enterprises Limited (PEL) with Piramal Finance Limited (PFL) by Q3 FY26 (September 2025) is a significant strategic move. This simplification of the corporate structure is expected to enhance transparency and provide shareholders with direct access to the entire lending business, potentially unlocking greater value.
Piramal Enterprises has a clear roadmap and has largely met its FY25 targets, indicating a capable management team delivering on guidance. The company’s Q1 FY26 performance in AUM growth and operational efficiency shows strong execution of its retail-led strategy. However, the impressive PAT growth in Q1 FY26 should be viewed with an understanding of the underlying provision dynamics and declining provision coverage ratios.
Looking ahead, while the strong domestic economic tailwinds, coupled with PEL’s focused strategy and robust operational execution, position it well for continued AUM and NII growth, sustained profitability will hinge on maintaining healthy asset quality without further aggressive adjustments in provisioning. Investors will be keen to see if the management can achieve its aggressive FY26 PAT target while simultaneously improving provision coverage.
Key Takeaways:
- Retail-Led Growth: PEL’s pivot to a retail-led NBFC is successfully driving strong AUM growth, aligning with favorable domestic market trends.
- Operational Efficiency: Significant reduction in Opex to AUM ratio highlights effective cost management and technological leverage.
- Nuanced Profitability: Q1 FY26 PAT surged, but a substantial reduction in loan loss provisions and a decline in Provision Coverage Ratio for Stage 3 assets necessitate cautious interpretation of earnings quality.
- Asset Quality Vigilance: While overall GNPA is stable, the slight uptick in NNPA and reduced PCR for Stage 3 assets in both total and growth books are key watchpoints.
- Strategic Consolidation: The impending PEL-PFL merger is a positive structural development set to simplify the business and enhance shareholder value.
- FY26 Targets: Meeting the ambitious full-year PAT target will require continued strong NII growth and careful management of credit costs in subsequent quarters.
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