Shares of Piramal Enterprises plummeted 10 percent to Rs 882.85 on the Bombay Stock Exchange (BSE) during Wednesday’s intra-day trading, following the company’s announcement of its financial results for the June 2024 quarter (Q1FY25). The sharp decline in stock price reflects investor concerns over the company’s substantial year-on-year (YoY) profit drop and the challenges it faces in its ongoing business operations.

Piramal Enterprises reported a 64 percent YoY decrease in consolidated net profit, which fell to Rs 181 crore for Q1FY25. This decline is attributed to a substantial one-time gain of Rs 855 crore recorded in Q1FY24, resulting from a stake sale in a Shriram Group entity. However, sequentially, the company’s profit showed a notable improvement, up 32 percent from Rs 137 crore reported in the March 2024 quarter (Q4FY24).

The company’s net interest income increased by 18 percent YoY to Rs 807 crore, up from Rs 681 crore in Q1FY24, and other income grew by 33 percent YoY to Rs 58 crore. Additionally, Piramal Enterprises reported an exceptional gain of Rs 104 crore from gross Alternative Investment Fund (AIF) recoveries during the quarter. Despite these positives, the company’s net interest margin (NIM) declined to 6.7 percent from 7.3 percent in the previous year.

Piramal Enterprises’ total assets under management (AUM) increased by 10 percent YoY to Rs 70,576 crore, bolstered by robust growth in its legacy book. The company has set a target to reduce legacy AUM to less than 10 percent of total AUM by the end of FY25. This strategic shift is expected to lead to elevated credit costs in FY25, according to Motilal Oswal Financial Services (MOFSL).

MOFSL projects a 24 percent compound annual growth rate (CAGR) for total AUM and a 36 percent CAGR for Retail AUM over FY24-FY26. Despite some signs of improvement in the company’s growth business, MOFSL maintains a ‘Neutral’ rating on the stock, citing that it will take at least 12-15 months for Piramal Enterprises to counterbalance the earnings and credit costs impact associated with the accelerated reduction of legacy AUM.

The brokerage firm also noted that opportunities previously considered for inorganic acquisitions or strengthening the balance sheet might now be redirected towards managing stressed legacy AUM. Analysts at MOFSL do not foresee any immediate catalysts for a significant improvement in the core earnings trajectory of the company.

As Piramal Enterprises navigates these financial challenges, investors will be closely watching the company’s strategic moves and its ability to manage its legacy assets effectively while driving growth in other areas.