Piramal Finance Pvt. Ltd.

Instrument Amount Rating Action (in Rs crore ) Dec-14 Non Convertible Debentures (backed by PEL) 100.00 [ICRA]AA(SO) (Stable) reaffirmed Non Convertible Debentures (backed by PEL) 100.00 [ICRA]AA(SO)! (Stable) withdrawn Long term bank facilities (backed by PEL) 600.00 [ICRA]AA(SO)! (Stable) withdrawn Commercial Papers 100.00 [ICRA]A1+ reaffirmed

ICRA has reaffirmed rating of [ICRA]AA(SO) [pronounced as ICRA double A (Structured Obligation)] to the Non Convertible Debentures of Rs 100 crores of Piramal Finance Pvt Ltd (PFPL) fully guaranteed by Piramal Enterprises Limited.* The outlook on the rating is stable. The letter SO in parenthesis suffixed to a rating symbol stand for Structured Obligation. An SO rating is specific to the rated issue, its terms, and its structure. SO ratings do not represent ICRA’s opinion on the general credit quality of the issuers concerned. ICRA has also reaffirmed a rating of [ICRA]A1+ to the Commercial Paper Programme of Rs 100 crores of PFPL. ICRA has withdrawn the conditional rating of [ICRA]AA(SO) outstanding on Rs 600 crores of bank lines and Rs 100 crores of Non Convertible Debentures since there is no amount outstanding.

The ratings factor in the strong and experienced senior management team, robust risk management practices and the likely financial and managerial support from the promoters namely Piramal Enterprises Limited (PEL) rated [ICRA] AA/Stable/A1+. Being part of the , the company is expected to enjoy good financial flexibility despite its business model revolving around the perceived riskier segment of funding real estate projects. The ratings also factor in the presence of strong and experienced senior management team. These strengths are, however, partially offset by the attendant credit & concentration risk associated with a wholesale funding business model. ICRA notes the company’s plans to diversify its geographic presence. Going forward, the company’s ability to execute its business plans and grow profitability, ability to raise funds at competitive rates for growing the portfolio, and ability to maintain healthy asset quality would remain key sensitivities.

The long term structured obligation ratings further factor in an explicit unconditional and irrevocable guarantee from the parent for timely servicing of the debt. The ratings address the servicing of the loan and NCD to happen as per the terms of the underlying loan/NCD and the guarantee arrangement. Furthermore, the ratings assume that the guarantee will be duly invoked, as per the terms of the underlying loan/NCD and guarantee agreements, in case there is a default in payment by the borrower.

Piramal Finance is promoted by Group. The group diversified into financial services sector in FY12 after the sale of healthcare solutions business to Abbott in Sep-10. Accordingly, PEL set up a wholly owned subsidiary, PHL Capital Pvt Ltd, in order to hold all the investments in financial services sector. PHL Capital, holds 100% in Piramal Finance. The group plans to have significant presence in financial services sector, providing finance to Real estate, and Education sectors. The group is looking to leverage on its domain knowledge in the real estate sector. The group has strong presence in the real estate sector through Piramal Realty, promoted by Mr. Ajay Piramal, Piramal Fund Advisors Pvt. Ltd. and Indiareit Investment Management Company. Piramal Fund Advisors Pvt. Ltd. are advisors to the Indiareit Fund which is a domestic real estate private equity fund focused on the Indian markets and Indiareit Investment Management Company is manager to offshore real estate private equity funds investing in through the FDI route. Further, in the financial services space the

* For complete rating scale and definitions please refer to ICRA's Website www.icra.in or other ICRA Rating Publications

group has acquired 9.9% strategic stake in Shriram Transport Finance Company Limited in May 2013, 20% in Shriram Capital in April 2014 and 9.9% in Shriram City Union in Jun 2014.

The lending operations of the company started from FY12 and the company had book size (including investments in NCDs) of Rs. 677 crores as on Jun 30, 2014 vis-a-vis Rs 896 crore as on June 30, 2013. With net worth of Rs 541 crores as on Jun-14, the company can take exposures up to ~Rs. 81 crore. Currently, exposures through Term loan route are mostly taken on PFPL’s books. PFPL also manages few Structured Investments of PEL.

PFPL’s lending book stood at ~Rs 677 crores as on June-14. Real estate sector accounts for 81% of the book while the remaining consists of education loans. Within real estate, the company’s focus has been mainly on the residential projects while exposures to commercial projects have been few and selective. By geography, the company exposures have largely been in metropolitans of , Bangalore, Chennai, Pune and NCR. The company has put in place adequate internal control systems and risk management processes with each proposal being approved by the credit committee.

In terms of asset quality, the company has reported Gross and Net NPAs of 9.77% and 9.88% respectively as at March 31, 2014 with slippages in two of its accounts. However, as per management, these exposures are adequately secured and probability of recovery remains high resulting into low eventual losses. Given the high portfolio concentration and the higher inherent riskiness of real estate exposures, the portfolio has high inherent vulnerability to any borrower or industry specific event which could result in a lumpy deterioration in asset quality indicators. The company’s ability to grow its book while maintaining asset quality remains a key rating sensitivity.

In FY 14, PFPL reported PAT of Rs 49 crores vis-a-vis Rs 44 crores in FY 13. The net worth of the company stands at Rs 523 crore as at March 31, 2014 and RoNW for FY 14 was ~10%. The capital adequacy ratio (entirely Tier I capital) stood at 72.05% as on Mar-14. For Q1 FY14, the company reported a PAT of Rs 17.8 crores.

Company profile About Piramal Finance Pvt. Ltd. Established in 2011, PFPL is a non banking financial services company (NBFC) and is categorized as a non-deposit taking systemically important (ND-SI) NBFC by Reserve (RBI). The company was earlier known as Glass Engineers Pvt. Ltd. The company is engaged in the business of lending to (a) Real Estate and (b) Education Projects, in Mumbai, Pune, Chennai, Bangalore and NCR region. It is also gradually expanding in other locations. The company belongs to Mumbai based Piramal Group with diversified business interests across pharmaceuticals, packaging, financial services and real estate. The company has a lending book (including investments in NCD) of ~Rs. 677 Crores as on June 30, 2014. The net worth of the Company is Rs. ~541 crore as on 30-Jun-14.

About Piramal Enterprises Limited PEL is part of the Ajay Piramal group of companies. The Group is a diversified Indian business house with interests in healthcare, glass manufacturing and real estate. A significant part of PEL’s growth, especially in its early years has been contributed through in-organic growth. In 1988, the group acquired Nicholas Laboratories (NL), which was a Sara Lee group company (NL was incorporated in 1947 to manufacture pharmaceutical formulations by the Nicholas Kiwi group). Following its acquisition, the group changed NL’s name to Nicholas Piramal India Limited. Subsequently, the company continued to grow by acquisitions – a pattern that has been historically followed by the group – acquiring Roche Products India in 1993, Sumitra Pharma in 1994, Boehringer Mannheim in 1997, R&D division of

Hoechst in 1998, Rhone Poulenc India in 2000-01, the pharma division of ICI in 2002, and Sarabhai Piramal (remaining 50% stake) in 2003-04. In recent years, the company has also undertaken acquisitions in the critical care and OTC segments in order to strengthen their product profile and geographic presence. In May 2010, PEL announced the sale of its domestic formulation business which manufactures, markets and sells branded pharmaceuticals in India, Nepal and Sri Lanka to Abbott for a total consideration of US$ 3.8 billion. PEL also sold its majority stake (97.5%) in Piramal Diagnostic Services Private Limited (PDPSL) to Super Religare Limited for a total consideration of Rs. 600 crore. Post these divestments PEL’s business is currently undergoing a transitional stage with the management scouting for investment opportunities to deploy the surplus cash. Towards this end, the company has forayed into the financial services industry (NBFC, PE business and acquisition of 10% stake in Shriram Transport Finance Limited) and Healthcare Information Analytics (Acquisition of Decision Resource Group). Presently, PEL’s presence in healthcare is restricted to CRAMS, Critical care, OTC and novel drug discovery.

Recent Results On a consolidated basis, PEL reported Operating Income of Rs. 4471.5 crore, OPBDITA of Rs. 617.4 crore and Profit after Tax of Rs. (497.5) crore in FY14 as against an Operating Income of Rs. 3502.8 crore, OPBDITA of Rs. 418.8 crore and Profit after Tax of Rs. (217.5) crore in FY13. December 2014

For further details please contact: Analyst Contacts: Mr. Karthik Srinivasan (Tel No 91-22-6179 6365) [email protected]

Relationship Contacts: Mr. L. Shivakumar, (Tel. No. +91-22-6179 6393) [email protected]

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