Digital Expansion And Urban Lending Will Drive India's Future

Key Takeaways

• Strong retail loan growth, digital investments, and operational efficiency are driving improved profitability and positioning the company for long-term expansion.
  
• Streamlined corporate structure and diversified funding enhance capital adequacy, risk management, and earnings stability amid India's evolving credit landscape.
  
• Rising MSME lending risks, regulatory changes, and intensifying competition threaten profitability, margins, and growth, while capital adequacy pressures may necessitate equity raising or constrain expansion.

Catalysts

Operates as a non-banking financial company in India.

• Piramal Enterprises is experiencing robust growth in its retail loan book, with retail AUM up 37% year-on-year and mortgages now accounting for 55% of total AUM, significantly above overall market growth rates. This reflects rising credit demand among India's expanding middle class and ongoing urbanization, which are likely to drive both asset growth and revenues in the long-term.
  
• The company's heavy investment in digital and AI-driven platforms, combined with a high-touch branch network now reaching operational maturity, has led to a consistent reduction in OpEx-to-AUM ratios (now at 4.2%, trending towards 3.5–4%), supporting structural improvement in operating leverage and likely boosting net margins.
  
• The ongoing simplification of the corporate structure via the merger of Piramal Enterprises and Piramal Finance, coupled with reductions in legacy asset drag and high-risk investments, is expected to improve capital adequacy, reduce operating inefficiencies, and enhance return ratios (especially ROE) as legacy positions run down and capital is redeployed, supporting higher earnings growth.
  
• Increasing success in co-lending, direct assignment, and fintech-originated lending (with improved credit protection via FLDG structures) is broadening funding sources and diversifying risk exposure, positioning Piramal to better capitalize on the formalization of credit markets and gain share in underserved or digitally-native segments-likely drivers for fee income and sustainable AUM growth.
  
• Strategic risk management, rapid risk monitoring, and pivoting lending strategies in response to credit cycle signals (e.g., reducing disbursements in higher-risk MSME and used-car segments while accelerating in more resilient retail and salaried products) help protect asset quality, minimize credit costs, and contribute to more stable and predictable future earnings.

Piramal Enterprises Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Piramal Enterprises's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 33.3% in 3 years time.
• Analysts expect earnings to reach ₹27.5 billion (and earnings per share of ₹93.69) by about August 2028, up from ₹5.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹17.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, down from 45.4x today. This future PE is lower than the current PE for the IN Diversified Financial industry at 26.4x.
• Analysts expect the number of shares outstanding to grow by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.46%, as per the Simply Wall St company report.

Piramal Enterprises Future Earnings Per Share Growth

Risks

• Rising risks in open-market MSME unsecured lending and persistent credit deterioration in this segment (notably with fresh origination risk deteriorating in 23 of 30 sectors) may elevate credit costs and increase potential for higher NPAs, negatively impacting net earnings and profitability over time.
  
• Regulatory changes, such as the upcoming RBI rule on the elimination of prepayment charges for floating rate loans to individuals and MSMEs (effective January 2026), will lead to a loss of prepayment fee income in key retail products, reducing future revenue streams and potentially weighing on margins.
  
• A declining capital adequacy ratio (from 23.6% to 19.3% as a result of business growth and regulatory classification changes), combined with continued rapid AUM growth, could necessitate an equity raise or restrict lending expansion, hampering AUM and revenue growth-especially if regulatory or rating agency pressures arise.
  
• Ongoing reliance on internal credit data for ECL provisioning may lead to under-provisioning if macroeconomic or market-wide risks emerge that are not reflected in recent internal performance, risking future earnings volatility and a sudden rise in provisioning costs.
  
• Intensifying competition from banks and agile fintechs, especially as digital lending and FLDG (first loss default guarantee) usage increases, could compress spreads and force Piramal to compete on price or invest heavily in technology, resulting in lower net interest margins and rising OpEx, ultimately threatening earnings growth and ROE.

Valuation

• The analysts have a consensus price target of ₹1185.0 for Piramal Enterprises based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1350.0, and the most bearish reporting a price target of just ₹950.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹82.5 billion, earnings will come to ₹27.5 billion, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 14.5%.
  
• Given the current share price of ₹1161.9, the analyst price target of ₹1185.0 is 1.9% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.