Ladies and gentlemen, good day, and welcome to Piranal Enterprises Limited Q2 and H1 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Dhaddha, Chief Investor Relations Officer from Piranal Enterprises Limited. Thank you, and over to you, sir. Hi, good evening, everyone. Hope you are safe and in best of your health. I am pleased to welcome you all to this conference call to discuss Q2 and H1 FY 2022 results. Our results materials have been uploaded on our website, and you may like to download and refer during our discussions. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our businesses face. On the call today, we have with us our Chairman, Mr. Ajay Piranal, Ms. Nandini Piranal, Executive Director of Piranal Enterprises and Chairperson, Piranal Pharma Limited, Mr. Khushru Jijina, Executive Director of Financial Services, Piranal Enterprises, Mr. Jairam Sridharan, Managing Director of Piranal Capital & Housing Finance, and Mr. Vivek Valsaraj, CFO of our company. With that, I would like to hand it over to our Chairman and would request him to share his initial thoughts. Over to you, sir. Good day, and welcome to our meeting. During the last quarter, we have made significant progress on our strategic priorities and has been transformational for our company, marked by the achievement of two major milestones. First, we completed the DHFL acquisition on actually 30th of September, and this acquisition has created one of the largest HFCs in India that is focused on the affordable segment. The second thing we did was announce the pharma demerger and simplification of the corporate structure, which we did in October. The demerger will create two separate pure play entities in the financial services and pharmaceuticals in line with our commitment to the shareholders and investors. The DHFL acquisition is a major step in the transformation journey of our financial services business, which we have characterized in three phases. The first phase is consolidation. Prior to the DHFL acquisition, we had completed phase one, where we made the business more resilient by A, improving capital adequacy, B, reducing the loan book concentration, and C, building adequate provisions and finally diversifying the borrowing mix. The second phase is what we are going through now, which is a transition and quantum growth. We have achieved significant growth through the acquisition of DHFL that would have otherwise taken several years to accomplish through the organic route. Moreover, this growth has been achieved without infusing or raising any additional equity for the acquisition. The impact of the DHFL acquisition can be seen, firstly, in growth. Our total AUM has increased by 42% quarter-on-quarter to be INR 67,000 crore. Our retail loan book has increased by 4.3x to INR 22,200 crore. We've now got diversification, and the share of our retail loan book has increased to 33% from 12%, which was at the end of March. Besides that, we've got significant increase in scale and granularity and have created a platform with a pan-India presence with 301 branches across 24 states and union territories. We have access to a customer pool of 1 million, and the average ticket size of the combined retail book is 16 lakh INR, making the books more diversified and granular. The consideration that was paid for the acquisition as compared to the gross value of the book needs some explanation. DHFL's loan book has witnessed a significant markdown by the administrator prior to the acquisition. Over the last two years, the book had already been marked down from INR 88,000 crore. Prior to the acquisition, the gross loan book, excluding the fraudulent assets, was INR 44,000 crore. We have paid a net consideration of INR 20,000 crore for the assets of DHFL. This valuation serves as an adequate buffer to mitigate any unforeseen asset quality risk. Since the DHFL's loan book is largely retail and has high granularity, it leads to overall de-risking of the portfolio. Also, there are no additional GNPA or NNPA as the loans acquired from DHFL have been fair valued. Consequently, the amalgamation of the DHFL book has made our overall asset quality metrics noticeably stronger. As a result, NPA ratios declined post the DHFL merger. GNPA for the combined entity has improved from 4.3% in June to 2.9% on September 30th. NPA has reduced from 2.2% to 1.5%. Coming to provisioning, you would recollect that in the last quarter of the financial year 2020, at the onset of COVID-19 pandemic, we had created provisions of INR 1,900 crore incrementally. Despite conservative accounting of the DHFL loan book, improvement in the overall loan book mix and a favorable real estate market scenario, we continue to maintain these provisions even after the DHFL merger. Provisions have been stable at INR 2,683 crore as of September 2021. Total provisioning stood at 4% of the combined AUM, and provisioning against wholesale assets stands at 5.8%. The DHFL portfolio has an average yield of 11% and has been acquired with 10-year borrowings at 6.75% per annum, and there has been no additional equity against this. Hence, we expect it to boost overall profitability going forward. Our phase three of our strategy is a sustainable growth and profitability. This, with the DHFL acquisition now complete, we have put in place the appropriate levers for superior performance in the future. Borrowing costs have declined immediately after the acquisition, as the deal was partly funded by NCDs worth INR 19,550 crores at 6.75%. With a higher loan book diversification and growth, there could be further reduction in borrowing costs in the coming quarters. Post the DHFL merger, the leverage of the financial services business has increased from 1.6 as of June 2021 to 2.7 as of September 2021. With growth in the retail loan book, the leverage could increase to 3.5 in the near- to medium-term. We are also building a technology-led retail lending business which should help us in improving cost efficiency as well as better manage asset quality. Moreover, the change in the product mix by launching new differentiated higher-yielding products should also add to the profitability. Now I'll come to the second major strategic initiative which we have done, which is the demerger and simplification of the corporate structure. This was approved by our board in October. This was a long-awaited announcement by our stakeholders, as we have been taking several measures to simplify the company's organizational structure over the last two or three years. The pharma business will get vertically demerged from PEL and get consolidated under Piramal Pharma Limited. PPL will become one of the larger pharma companies listed on the NSE and BSE post the demerger. Our financial services, PHL Fininvest Private Limited, the NBFC, which was a 100% subsidiary of PEL, will get amalgamated into PEL to create a diversified NBFC, which will remain listed on NSE and BSE. Piramal Capital and Housing Finance, the HFC, post the DHFL acquisition, will remain a wholly owned subsidiary of PEL. We expect this demerger to be done between 9-12 months from the date of announcement, subject to all the various required approvals. Coming to the overall financial performance of PEL, we continue to deliver a resilient performance in this quarter and the H1, despite the COVID second wave and our cautious and conscious strategy to reduce the wholesale loan book. Adjusted net profit was stable at INR 1,090 crores for the H1. It's important to note that the P&L performance for the period does not include DHFL's financials. Organic retail lending disbursements grew 2.6x Q-on-Q versus the same first quarter of FY 2022, showing a strong rebound from the impact of wave two. We launched two new product categories in this quarter and our partnerships are also scaling up well. Collection efficiency in our retail portfolio recovered to 99% in September 2021, similar to that of March 2021 levels. In the wholesale lending, the performance of our developer clients significantly improved compared to the previous quarter, FY 2022, reflecting the trend in the overall real estate market. However, in line with our strategy to make the wholesale loan book more granular, we are consciously bringing down our wholesale book. In fact, no account exceeds 10% of the net worth of financial services. Our pharma business delivered a robust revenue growth during the H1 of this year at 20%, delivering revenues of INR 2,983 crore. The pharma business contributed to 50% of PEL's overall revenue. The EBITDA margin was lower at 13% in this half. We expect a better performance in the H2 and which is expected to offset the lower margins in the H1. Historically, the H2 has been better and is expected to be on similar lines this year. During the financial year FY 2021, H2 contributed to 55% of revenue and 65% of EBITDA. We did witness some execution-related challenges during the quarter related to logistics and availability of raw material and manpower. The CDMO business grew by 11% and our development order book is up by 50% as compared to the same period last year. We are witnessing a robust demand of sterile fill finish in North America. In the complex hospital generics business, our H1 revenue grew by 26%. The business witnessed recovery despite the impact of the Delta variant on demand for our key product lines in a few predominant geographies. We have delivered strong sales of levofloxacin in the U.S. and continue to gain market share. There was a strong demand for injectable pain management products and maintained market share in the U.S. intrathecal business. The India consumer healthcare business, the revenue in the H1 grew by 54%, which was driven by strong performance in key brands. We have launched six new products in this H1 and have a strong pipeline for the year. We are reinvesting our profits for future business growth. In closing, I would say that this has been a transformational quarter for our company, and the steps taken by us have significantly strengthened the foundation to support future growth. Our balance sheet strength and uniqueness of our business model sets us apart, enabling us to create long-term value for our stakeholders. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Reminder to the participants, anyone who wishes to ask a question may press star and one. The first question is from the line of Kunal Shah from ICICI Securities. Please go ahead. Hi. Congratulations on all the business developments. Firstly, in terms of the breakup, if you can share this 20,000-odd crore between the retail and wholesale. Similarly, in terms of from where the wholesale book was marked down to what level, and same with like retail. INR 88 crore-INR 44 crore and maybe INR 44 crore-INR 20 crore, and breakup between retail and wholesale. Out of the INR 20,000 crore, we've added about INR 18,500 crore for the retail book, and the balance is for the wholesale book. Wholesale is coming merely at INR 1,500 odd crores. About 2,000, yeah. Yeah, about INR 2,000-odd crore. Okay. The gross value of this assets would have been? I think this is a sufficient enough detail, Kunal. Okay. Because that estimated value was around about INR 25,000- odd for wholesale and INR 27,000 retail. Is it like. I think we have gone exactly on the basis of how we had bid for the, this thing. In the bids, this is what the bid we had done for both the wholesale and retail, and we have just followed that. Okay. In terms of cash, I think last time, the sense was it should be around about INR 11,000-12,000 crore. Currently it seems to be almost like INR 15,500 crore, and net, maybe of the liability that seems to be like INR 14,000 crore. Is it more of a repayment which has happened and we have got the cash since March, as that component seems to be higher than the expectations and net consideration or asset acquired that seems to be lower than the expectations. That's the only thing. Yeah. It's a combination of both. There have been some repayments. I mean, the repayments have been good and more robust than what we had thought, and there have been some prepayments as well. Okay. Sure. If we look at this retail, so then 18.5. Ask all at one time now. I can't keep answering. You ask all questions at one time now. Sure, sure. I'm sorry. Yeah, sure. Firstly, in terms of when I look at the overall retail book and then ex this INR 18,500 crores of DHFL, then the organic retail seems to be relatively lower or there is not much of a growth out there. Definitely we have shared the disbursements number, but would want to understand the outlook on the organic side. Lastly, in terms of if you can give a more granular color in terms of how much would be the stage two and the restructuring now on this expanded base. Was there any restructuring which was done in DHFL book, or maybe there was any restructuring which was done even in PEL book ex of DHFL? Yeah. Well, Jairam, can you answer these questions? Yeah. Kunal, firstly, if you look at the quarter that has just gone by, your observation is accurate that the disbursement growth is very strong in the organic retail book, but AUM growth is not. The reason is very similar to what we saw in the previous quarter, which is that run-offs of the old book continue to be quite high. Going forward, the way we are going to disclose is to show one consolidated number for the entire business, and you're no longer going to see separation between, let's say legacy BCFL book versus legacy DHFL part of the portfolio, et cetera. This is all one business now, and you're going to see the overall disbursement numbers and AUM growth numbers on this consolidated business going forward. Our expectation is that growth at the AUM level will start coming through, you know, once we stabilize the book that we have just acquired through DHFL and once all our policies and risk management infrastructure is put in place. You should see that AUM growth coming through in, you know, a little while. In the interim, we will continue to show you disbursement growth as a precursor to AUM growth. As you know, disbursement growth comes first in the retail business and AUM growth comes a few quarters later. That's exactly what you're going to see here as well. You will start seeing us talk a lot more about disbursement growth in initial quarter, and it'll slowly translate into AUM growth in the times to come. Sure. Color on restructuring? Our restructuring, the overall restructuring in the book is just about 2%. Also you'll know that our book is the retail that is a lot more self-employed than what you would see in the external market. This is exactly what we are seeing in the market. We feel very good about the restructuring performance. New flows in this quarter have been relatively low, apart from the legacy DHFL book where there has been some, but otherwise this quarter there was fairly limited amounts. Sure. Okay. Yes, thanks, and all the best. Yeah. Thank you. The next question is from the line of Nishant Shah from Point72 Asset Management. Please go ahead. Hi, sir. Congratulations for the acquisition and also the corporate restructuring or the carve-out of the pharma business. It's a good clean structure now. I have a question on the Shriram part of the business. Is this still considered like a strategic investment? There's talk in the media about like some kind of reorganization over there. If given an option to exit, would you consider an exit from that, or do you continue to be happy to stay invested and, like, enjoy the growth in that business? Yeah, that's my only question. We have said this before also, it's not a strategic investment for us, but at the same time, it's not that we are desperate to sell it at any time, at any price. So at the appropriate time we will exit. So in the long term, this will not be on our books, but at the moment. Mm-hmm. We will evaluate, but it's not strategic for us. Fair enough. Yep. Yep, that answers it perfectly. Thank you. Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead. Yeah. Hi, congrats on the quarter. Just a couple of questions. They might be a bit repetitive, but firstly I'd just like to understand on DHFL's book of INR 42,000 crore, what were the NPAs like that resulted in, you know, y'all valuing the book only INR 20,000 crore? Then my second question is the loan book, the home loan book specifically. Piran Engineer, your audio is breaking from your line, sir. Please check. Oh, Operator, is this better? Yes, sir. Please go ahead now. Thank you. Yeah. The home loan book would be about INR 15,000 crores. How do you expect to meet the 50% for the HFC license by 2024? Lastly, how do you think about net interest going forward from this 4.3% level after accounting for Dewan? That's all from my side. Jairam, you want to take these questions? Yeah, yeah. Happy to. To your first question, if I recollect, your three questions, your first one was on, was it retail? Jairam, basically what I'm saying is that, you know, Dewan's book was INR 42,000 crore. Okay. We valued it at 20. What were the NPLs that resulted in? I'll tell you. NPA number, Piran. One important thing to keep in mind is the way the accounting has worked is through reflection of the fair value that was discovered in a bidding process. This is unlike the situation where you have an existing book, you do a risk assessment of the book, and then you say, "Okay, I'm going to discount the book by X% because I believe X% of loss is going to come here." That discounted value is what you see as a net book value. This is not that situation. This is a situation where a book exists. The book was transparently bid. In the bidding process, the final outcome came in terms of the discovered value of the full book. Now we are reflecting that discovered value in our balance sheet and then allocating the purchase price across the various asset categories, right? Trying to do a pure mathematical calculation to say what does this imply in terms of our expectation on NPA recovery or new NPA formation, et cetera, would be incorrect because that's not the way this number has been arrived. This number has been arrived as a part of a price discovery process, right? Now, that price discovery has been appropriately allocated. That said, to your question of, you know, how much is the NPA book in Dewan, et cetera. You know, the June numbers of Dewan are well-known, so you can see it. It's in the public domain. The retail book of Dewan had NPA ratios of upwards of 25%. Of course, the way we have incorporated and amalgamated it into our book, the NPA ratio at which we have amalgamated it is basically 0%, because we have only amalgamated a good part of the book. That's the way this has happened. Okay, thanks. Again, if the NPA ratio is 25%, the maximum hit you can have is 25%. No, no. No. If the price discovery process results in, let us say, $0.10 on the dollar on a portfolio, $0.10 is what you can reflect on the book. Doesn't mean that $0.10 is what you expect to recover, but $0.10 was the discovered value of the book in my hypothetical example. In this case, $0.40 and change was the discovered value of the book, and that's what's reflected. We will allocate that price across various asset classes. To add, Piran, what Jairam mentioned, a large part of this book is secured book. You know, secured by assets, which are house properties. Then what Jairam is trying to explain you is that, you know, what you ended up paying for asset was INR 20,000 crore after the cash, if you deduct the cash that you got at DHFL balance sheet. In all, you paid INR 20,000 crore for assets, and hence you're valuing the entire pool of assets as INR 20,000 crore, which has got nothing to do with asset quality of that asset pool. We wanted to remain conservative in terms of how we wanted to account for. We did not want to account for at value more than what we paid for, and hence we've accounted for INR 20,000 crore, the price that we paid for assets. Okay. That could be upside potentially. Yes. Yes. Got it. Okay, thanks. The other questions please. Mr. Engineer, sorry to interrupt you. This is the operator. Sir, your audio is breaking from your line. Please check. Okay. Now? Yeah. Piran, you had another question on HFC percentage, and you made the valid observation that in the HFC our ratios are below the regulatory ask right now. However, the regulator has given a glide path on how to get there. We are going to be striving to achieve those, and we will be in constant conversation with the regulator in this regard. It's by FY 2024 regardless of anything, right? Even for you all. Yes, of course. That is the regulatory guideline. We will, of course, on a case-by-case basis, the regulator, I'm sure, will have conversations with individual players, so we will continue to engage with them on that point. Right now, there is no immediate, sort of looming, deadline in front of us. We will continue to strive towards increasing the retail ratio, as we have mentioned multiple times. Hopefully or just organically, our strategy itself will push us in that direction. We will be guided by what the regulator you know requests us to do. Got it. This is the operator. Sorry to interrupt you, Mr. Piran Engineer. We are not able to hear you. Request you to please rejoin the question queue. Thank you. We'll take the next question from the line of Alpesh Mehta from IIFL Securities. Please go ahead. Hi. Thanks for taking my questions and congrats on the good set of numbers. All the questions are related to the accounting of DHFL. First, I can see the goodwill increasing by almost INR 10 billion. Is it on account of DHFL? That is first. Secondly, what is this transition cost of INR 1.43 billion for the DHFL merger? Third, if I see the segmental reporting, the financial services total assets have increased by around INR 27,600 crore, around 27,600. Whereas the loan book added is around INR 20,300 crore, and our core balance sheet is largely flat quarter-on-quarter. So what explains this difference of around INR 73 billion? The fourth question is, when DHFL reported FY 2021 earnings at that point in time, there was a DTA outstanding of around INR 102 billion. Whereas in the consolidated numbers that we have reported, there is no increase in the DTA. How the tax losses are going to be utilized, how the tax assets are going to be utilized after the merger? The last question related to pharma. In the segmental reporting, pharma assets versus the debt reported. The pharma sector liabilities versus the debt reported in the footnote, the difference is around INR 23 billion. What is that difference on account of? Thank you. Okay. Alpesh, I'll take some of your questions. The first question that you had asked was with respect to increase in goodwill. The increase in goodwill here is not DHFL. This is largely the Hemmo acquisition. We acquired Hemmo. The total consideration paid and payable is about INR 1,000 crore. Currently, the purchase price allocation has not been done, and all of this has been parked into goodwill. After purchase price allocation is completed, this will get regrouped into the respective heads. The second question was with respect to the transaction cost for DHFL. This is largely the stamp duty that will be payable in the state of Maharashtra as well as other costs payable to various consultants. That's what's accounted there. It also includes the transaction cost for the Hemmo transaction which had happened. Mm-hmm. Yeah. With respect to the deferred tax asset, again, this has been fair valued and marked down as we deemed appropriate in the purchase price allocation, and that's what's factored in terms of the increase. Sorry to interrupt you here. Will we be able to utilize this deferred tax assets in future? We are not valuing because we wanted to remain conservative, Alpesh, and we valued the assets only to the extent of what we are paying. Anything over and above will actually be upside, and we don't want to quantify upside in any form right now. It is fair to say that there is a potential tax benefit component to this, which we have not quantified and put in here. As you have seen, we have taken the book at a particular face value, and we have done fair value adjustments to a significantly lower value. The losses that get created, you know, because of that, do give you eligibility for potential tax covers in the future. We are not quantifying that for now. Okay. This will not, Jairam, reduce the reported tax rate, right? It will be just a tax outflow that will come down. Right. It's more of a cash flow accounting rather than the reported tax rate in the future. Right. Okay. The segmental reporting difference between the loan book and the gross asset increase because of DHFL around almost INR 73 billion. Yeah. It's primarily DHFL in terms of the increase that you see in the segment assets, and it also includes the other assets. It has AUM and the other assets both put together. That's what you see the increase of about INR 26,000 crore-INR 27,000 crore. Yeah, I agree. That INR 70 billion, large core component of that, can I assume that it's more on account of cash and bank balance or it's more to do with some other assets? Because obviously the fixed asset will not be that high. It's got a combination of both cash as well as other assets. Okay, great. Pharma liability, segmental liability versus the reported debt? Yeah. If you're referring to the comparison of September 2021 versus September 2020, then earlier the debt related to pharma was shown under unallocated. After the push down of the pharma business into Piramal Pharma, we've started reporting the number under the pharma segment. That's why you see a difference between September 2020 versus September 2021. No, my question was related to if you come to the notes to accounts, capital employed segmental reporting. Yes. When you see the pharma sector liabilities, the total liability is around INR 57 billion. Whereas in the same table below the notes to account, it's written around INR 33 or INR 34 billion related to the pharma sector. The difference of almost INR 23 billion in the pharma liabilities, what would that be on account of? We'll get back to you offline on this. Okay, great. Any just a last question, sorry. Any recovery from all this wholesale book written off or the markdown value of the retail loans as well in future? Everything is upside for us, right? There won't be any sharing of those with the creditors on this front. Yes. Yeah. Okay, great. Thank you so much. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yes. Thanks for taking my question. Just two questions. The first one is a clarification, wherein we had commented that the overall restructuring was 2% of the loans. Just wanted to clarify whether this 2% is in retail or as a proportion of the overall AUM. Overall. Sure. Thanks. The next two questions that I have is to Jairam. Jairam, in this quarter, I see that we have started this merchant BNPL and unsecured business loan in partnership with some of the fintechs. If you could just dwell on both these products a little bit in terms of what are the commercials and what is it that we are exactly trying to do here. The second question, again, is on disbursements. While we've been sharing disbursements that we've been doing under retail ex of DHFL, I mean, on a maybe conservative basis, I mean, what can we assume, what can the disbursement levels look like in retail loans with DHFL under the fold in the subsequent quarters? Sure. You know, to your question first on the. Let me start with the second question. It's fresher in my mind. The piece on disbursement trajectory, if you generally think about the size of network that has actually gotten added, and the fact that, you know, you can see that the overall network has increased by a fairly large number. However, a lot of the network increases from smaller locations, et cetera. Keeping that all in mind, you know, once the engine starts really running from a disbursement trajectory standpoint, and people come to sort of target levels of branch productivity and people productivity, it wouldn't be surprising if you had the overall monthly disbursement rate go up, you know, 5x-7x over the next one year or thereabout. It will be a gradual journey to go from here to there. That kind of increase in monthly disbursements is certainly on the cards, and it is something that we would want to do. To your first question on product trajectory, where you spoke about the merchant BNPL and unsecured BL and some of these other products that we have started. We've been talking about this for a little while. We want to be a multi-product retail lending platform. While we will be focused on affordable housing as our core pillar, there will be other products around it that we will create. As an organization, we have appetite for around 20%-ish of unsecured lending in our portfolio. It's not something that we're going to get to now or in the next one year or thereabout. Over time, slowly, that's directionally where we will head to make sure that we have an adequate earnings buffer in the P&L as well. Now, in that direction, we are experimenting with a lot of different product categories apart from plain vanilla unsecured personal loans, which of course is something that we will do digitally. Apart from that, we have been trying consumer BNPL in the quarters past. This quarter, we started merchant BNPL, which is essentially merchants on a platform connecting with their buyers. On that platform, we come and actually offer a BNPL, you know, to the merchants. That's one thing that we are, you know, trying. On the unsecured BL side, one of the things that you find in small town, midtown India is that small merchants very often don't have collateral to actually offer. To go ahead and do a lending relationship with them, you have to come up with an unsecured business loan, unsecured MSME lending product, which is what we have launched this quarter. It is purely focused on the MSME category. Needless to say, it is at a price point which is very different from what some of the other secured MSME lending like LAP, et cetera, would be. This would be about 500 basis points higher price than what a LAP might be, for example. Thanks, Jairam. If I can just squeeze in a follow-up question. In the context of the response that you gave to the disbursement that they could go up to, I mean, five to seven x kind of disbursements from the current levels, monthly disbursement run rate. Would it be fair to say, given that our old book, old retail book, ex DHFL, kind of continues to run off at a swift pace, and the fact that the DHFL retail book, which you have brought on your balance sheet again is a pristine book, I'm assuming, which will always obviously again continue to run off at a swift pace. Would it be fair to say that, I mean, AUM growth then would remain relatively muted given that our stance that we will be looking to continue to run down the corporate book? I think that is going to be true for the next quarter or two, but not beyond that. By that time, the disbursement trajectory will be sufficiently strong to offset potential runoffs. The other thing that also needs to be kept in mind is that in the last year and a half, two years in the DHFL book, the portfolio retention activities have been relatively weak. We have designed fairly strong retention activities, and we would also undertake those and implement those in the coming months to make sure that the runoff is also reduced from where it is. But the overall mechanics of what you're saying is correct. That currently the repayments are higher than new disbursements, which means AUM growth is going to not be there. However, as the disbursements keep increasing and the prepayments keep decreasing, the lines will cross over the next few months. Once that happens, you will start seeing AUM growth again. Which is, of course, the natural trajectory of all such transactions that you know happen. What's also important to see is the long-term, you know, long-term targets that we are targeting of, you know, nearly 2/3 retail and 1/3 wholesale in three to five years. You can see the kind of equity that the company has and the potential of growth that it can have. You know, in a matter of few quarters, as Jairam is mentioning, you know, the business is going to pick up the growth trajectory, you know, at a decent run rate and, you know, to start delivering for its long-term targets. Sorry, just one other thing to add. It's also important to keep in mind and not lose sight of the fact that what we have delivered in this quarter is a 40%+ growth in AUM. This is the sort of growth which it takes many quarters to deliver. All that has come in in one quarter because it was through this inorganic transaction, and that has completely changed the baseline for us as an entity without having to put in any incremental equity from our side. We've, you know, there is a lot of this one-time big growth growth spurt that's going to, you know, hold up for, you know, for a little while. However, on an incremental basis from this new baseline, you know, you'll need to give us a few months for us to stabilize the book and get to a point where disbursements are higher than repayments. Sure. I think this is very useful. I will come back in that question if you have time for me. All the best to you and your team. Thank you. Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead. Yeah, thanks for the opportunity. Firstly, on the CDMO business, now that the number of molecules in the phase III has ramped up from 10 to almost 34 over a period of last three to four years. Anyhow, any indication in terms of, you know, any of these molecules coming up for the commercialization and then provide a, you know, reasonable boost to the CDMO business? That is first. Second is, while the complex hospital generic sales has been pretty stable for last two to three quarters, but given that the COVID cases are on the rise over past one month, you see, some impact on the business over the near to medium term. Thirdly, the Riverview facility expansion will take, you know, how much time frame? Thanks. Okay. On the CDMO business, firstly, as you rightly pointed out, there is increase in the number of phase III molecules, which obviously increases the probability of these going commercial. Of course, there is a probability associated it because it's in phase III. Yes, that definitely will provide a boost to the CDMO business in terms of greater stability of revenues coming from the commercial. In terms of complex hospital generics, while in U.S. we are seeing significant improvement and recovery, especially for our inhalation anesthesia portfolio, and that has helped maintain growth as far as our hospital generics business is concerned. In Europe and some of the other key markets, there are still some challenges. While we are hopeful that things would improve, it's going to be a wait and watch situation. The U.S. is our largest business as far as inhalation anesthesia is concerned and for adjacent injectables, and that's where a large part of our business comes from. Yes, we would want to wait and see how it performs in the other markets. With respect to Riverview, the CapEx was a bit delayed because of the COVID scenario, and now it would be sometime mid FY 2023 when the facility would be ready post-expansion. Thank you. That's it from me. Thank you. The next question is from the line of Sumit Choudhary from Zaaba. Please go ahead. Yes. Hi, Mr. Piramal and team. Congrats on a good set of numbers. A question from me on the Dewan side. Just from my understanding, the current quarter numbers don't reflect the P&L impact of the Dewan transaction. If you could just help us understand, you know, what kind of yield should we expect to be delivered on the, you know, INR 20,000-odd crore books that you have taken over from Dewan, and what kind of operating expense increase, you know, should we expect going forward because of this transaction? Thank you. If you look at the average yield of the book, mostly what we have consolidated is the retail book. Just sort of, it's easier to just focus on that. The average yield is a tad over 11%. Almost all of it is funded through ten-year NCDs issued at 6.75%. That should give you a little bit of a sense of what the spread is on this part of the business and what impact it should have on profitability. As far as OpEx is concerned, the current OpEx levels of the erstwhile DHFL business are extremely low, abnormally low because of two things. One is that new business has not been happening, so cost of acquisition has been zero. A lot of people have left, so it's a very understaffed team. Staffing costs are relatively low. What you're likely to see in the i n very initial stages, you might see OpEx ratios which are quite attractive for a retail business. However, you will see us making the right investments and making sure that we build a long-term franchise here. In the long run, you should expect to see at the overall organizational level a cost-income ratio for us between core wholesale retail, given the mix that we are targeting, at somewhere around the mid-20s, is what you should expect to see. And that's the level at which we want to keep our disclosures. Over time, let's see, but right now we don't have an intention of specifically talking about individual business level cost to income ratios, et cetera. Let's see how this develops. Understood. Thank you. Second would be on the pharma side. On the CDMO, I think you alluded to the fact that there were some logistics and manpower-related issues which kind of delayed you know, some of the delivery. So, is that something that you expect to be resolved within this year? And should we therefore expect the overall business to grow on the pharma side at the run rates which has been indicated before, and the margins for the full year, should we expect them to go back to the you know, north of 20%-25% sort of range for the year? The CDMO business historically, if you see, has always been lumpy. Roughly we have about 45% of our business coming in the H1 and 55% of the business coming in the H2 of the year. More specifically, if you were to look at the EBITDA, then you have 35% of the EBITDA coming in the H1 and 55% coming in the H2. This year we expect it to be no different. It'll be on similar lines. A little bit more pronounced in terms of EBITDA towards H2 because we've had a slightly adverse mix when it came to H1. Yes, we would see a growth coming back. We delivered 20% growth overall for the pharma in H1, and overall pharma growth for H2 would be on similar lines. Though, in terms of margin, we may see some modest decline because input prices have been going up and, obviously we are not insulated from that completely. Likewise, expenses on distribution and logistics have also been going up. There may be some impact of that, a modest decline, but yes, more closer to what it was in FY 2021. Okay. Overall, like, the margins for H1 have been closer to 13%. Full year we should expect it to be closer to FY 2021, which is north of 20%, if I recall correctly, around that level. Okay, that's it from me. Thank you. Thank you. The next question is from the line of Utsav Mehta from Edelweiss AMC. Please go ahead. Hi, good evening. Thanks for taking my question. Just wanted to understand a little bit more granularity on the CDMO on the pharma business revenue. Is it possible to sort of share some insight into what percentage of revenue would be commercial, how much would be CRO and how much would be manufacturing for clinical phase I to III? Overall, if you look at it, about 75% of our revenue comes from commercial, about 25% comes from development, and the 25% includes about 3% from what we call as discovery. Commercial, by the very fact that each consignment is a larger ticket size, is higher in value. That's how typically the mix is. This 75% currently would be dominated by generic molecules, or is there a fair share of NCEs as well? It's a mix of both. We would put the mix at about 55% generics and 45% innovator. Okay, understood. Last question on the margins. Is there any element of pricing pressure or pricing erosion faced by clients on the generic commercial side which is causing difficulty to pass through the raw material prices? As of now, right now, there has not been a very material pricing pressure on the kind of products that we have been dealing as far as our API generics is concerned. But on some of our injectables we've been seeing significant pricing pressure, specifically in the U.S. market. Understood. One last question, more strategic from my side. I saw in the long-term targets that entering the India domestic formulations market is a priority and this is something you all have maintained for a while. How does that sort of stack up with wanting to run a CDMO wherein they have complex or even innovative molecules? Would clients be comfortable with something like that, having dealing with an organization that has footprints across both? Very rare typically. Our domestic formulations business is primarily India-based, as you are aware, and it primarily caters to the India market. Whereas our contract manufacturing customers are those who are based outside and who sell products for the local markets in North America and Europe. As you're aware, almost 75% of our revenues comes from North America. Domestic formulations, what we do, if at all we enter the space again, would be very different market, different kind of products versus what we are doing in our CDMO space. Okay. Understood. Thank you so much for your time. Thank you. The next question is from the line of Prakash from Axis Capital. Please go ahead. Yeah. Hi. Thanks for the opportunity. A quick one here on the pharma side. I heard you saying that, you know, typically it's about 30%-35% of the profit for the H1 and the remaining in the H2, and there's a seasonality, which I totally understand. When I compare the H1 of last year and this year, there's a major difference. Could you explain that? H1 of last year showing about 17% plus margin, and this year H1 is about 12.5%. So what is really changing here from a like-for-like H1? Yeah. As I mentioned before, this time in the H1 we had a very adverse product mix, which means in our CDMO space, the contracts which were invoiced were comparatively lower margin compared to what we had last year. We expect this to get reasonably corrected towards H2. It's an adverse product mix. Secondly, in line with our stated strategy, this year we have increased our sales promotion spend in our consumer products business to boost sales. As we've been saying, we'll reinvest profits to grow OTC business at a faster pace. That spend has gone up. In some of our overseas sites, due to various execution and operational issues, revenues have been lower, and we expect this also to catch up in the H2. As you're aware, overseas overheads are on the higher side, and therefore, absorption of fixed assets has been lower in the H1. These we expect to get corrected in the H2. Within CDMO, when you say the product mix has changed, when we see comparables like Divi's and all the innovator business has gone up and margins have actually gone up. Could you elaborate a little more on the product mix change in the CDMO space? I'm only talking of product mix change from a timing standpoint. What got delivered during the H1 were the comparatively lower margin contracts. The higher margin contracts would get invoiced and delivered in the H2 of the year. That's what caused the mix issue. Otherwise, the overall our mix has largely remained similar to what it was last year. Okay. On the complex hospital business side, since U.S. and other export markets are still seeing COVID cases, have you seen this business, you know, seeing full traction or it is still, I mean, could you see a faster growth going forward or this is the growth one should expect? Our inhalation anesthesia portfolio, which is a significant part of our complex hospital generics business, saw a good recovery post-COVID, especially in the U.S. market now. In fact, sevoflurane has come back nearly to pre-COVID levels, with us having a market leader position in the U.S. market. Some of the adjacent injectables, as I mentioned earlier, we were seeing some pricing pressure or lack of demand in some adjacent injectables. In the U.S. market overall, the growth has been better and sales is coming back to pre-COVID levels. It's in the other markets in Europe where we've been seeing some challenges because of sporadic lockdowns or issues related to COVID. Okay. How is the pipeline looking for this complex hospital generic businesses? We have couple of products which we are expecting U.S. approval. Are we on track to get it by end of FY 2022 or how do we see that? In terms of approval for the product that you are referring to, it has currently been delayed and we don't expect that to come within this fiscal year. In terms of the other pipeline for other generic injectables in the form of either in-licensing or sourcing from our own CMOs, we continue to work on that and there is good traction in the pipeline. Obviously the sales have got delayed because of COVID in some of the key markets, especially in the U.S. market. Hopefully this should start improving as overall position improves. Okay. Lastly, just reconfirming, for full year margin on the pharma side, it would be at par or little better is what you said. Is that understanding right? I said we will see a modest decline and that's largely driven by rising input costs, raw materials, as well as logistics and distribution expenses. It will see a slight decline versus previous year levels. Okay. Next year we should probably get back to normalcy. I would refrain from commenting for next year right away. We'll wait and see how things go. Okay. Okay. Thank you so much. To expand margins, so we remain committed to our long-term strategy of expanding margins to the levels that we have stated earlier in our Pharma Day. Okay. Perfect. Great. Thank you and all the best. Thank you. The next question is from the line of Bharat Sheth from Quest Investment. Please go ahead. Hi, sir. Thanks for the opportunity and congratulations on lot of restructuring. Sir, reorganization rather. Sir, on this financial side, what will be our directionally, if you can give some color of blended NIM with the change in mix of the business and post DHFL? Okay. We're not offering forward-looking NIM guidance right now. Just you know, as you've seen, you can see the books, NIM today in a pre-amalgamated form. The piece that is getting amalgamated, as I mentioned before, the gross yield is about just over 11% and, the cost of funds incrementally on that piece is about 6.75%. Putting that together that should give you, A little bit of a view of what margins are and spreads are going to look like in the coming two quarters. We are not offering any specific guidance at this point. In the next quarter, you will see the full quarter financial performance of the amalgamated entity, so it'll be pretty straightforward from there on. In the fourth quarter, we might consider offering you know, guidance for next year. Right now we don't have a guidance out on margins. The last question, see, we had acquired one land parcel against loan. What is the status of that and monetization plan? That was a land parcel in Andheri East, as we had explained last time, and it's a large parcel. In fact, there has been progress on that, and I would not like to diverge much. Right now, there are some approvals which we are getting from the government with some new approvals also coming. In the next six months, probably we'll be able to share more in detail. Needless to say that we have progressed in the matter, and we will share the details at the right time. Okay. Thank you very much, sir. All the best. Thank you. The next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead. Yes, thanks for allowing me a follow-up question. I'm referring to page number 34 of your presentation. Just trying to understand, after we include this 10-year NCD that we raised at 6.75%, what is our overall cost of borrowings, and what was our incremental cost of borrowings? The reason I ask this is, in one of the other slides you have mentioned that the yields of our retail portfolio, including DHFL, was about 11.2%. Now if we were to look at you as one of the largest HFCs in the country, I mean, with the current cost of borrowings, I mean, how do you see it trending down in the coming quarters, which would make you competitive to be doing housing finance, given that 75% of your retail book is indeed housing loans? Yeah. First, on your first part of your question, which is what is the cost of borrowing? That is the number that you actually see on page 34. Right. The decline that we see, the 60 basis points decline in cost of borrowings from last quarter to this quarter is because of the addition on a pro forma basis. Obviously, you have not seen the impact of this in this quarter's P&L. You will see the impact in coming quarter P&L. On a pro forma basis, if you were to just create a version of the books, you know, this is what it would look like. Now, on an incremental basis, the lending rates have clearly improved materially for us. We had come out with a retail NCD issue recently in which you know the cost of borrowings had a low eight handle. That gives you a sense of incrementally what has happened. Now, with the inclusion of DHFL and aggregation into our book, with the improvement in the NPA profile, as well as the improvement in granularity of the portfolio, our hope and expectation is that incremental cost of borrowing will continue to improve from where it is, with or without any action, favorable action on the rating side. Either way, we should see improvement in the cost of borrowing, and that will continue to strengthen the overall NIM trajectory. Now, in terms of your question on competitiveness of the housing business, I want to reiterate that the housing business that we enter and that we are big in is the lower end, the smaller towns, these self-employed and cash salaried type of customers. Our average yield in the housing business, even today, is 11%. This is not the you know, 6.5%, 7.5%, 8% housing business that banks do. We are not in that business at all. We are targeting a completely different segment, which is fairly underserved by banks, et cetera. That is the business model that you're going to see us pursue in the foreseeable future. Sure. This is very useful. That's all I have. Thank you so much. Thank you. The next question is from the line of Gautam from Deutsche Bank. Please go ahead. Gautam, your line is open. Yes. I just wanted to ask just a couple of questions. I guess the first one was, I think you already captured the fact that the DHFL acquisition book is captured at acquisition cost. Will there ever be a, I guess, a fair value, fair valuation for that book done or will it be maintained at acquisition cost? That's one. The second question was, when you, when we talk about, I guess the margins on the DHFL book, how would we, how do we think about this? I mean, technically you have an INR 88,000 crore book that's been valued at just about INR 20,000 crore at PCHFL. There is a debt when you talk about the 6.75% borrowing, that's a 101 basis to that INR 20,000 crore. I guess the 11% yield that we get on the book will be on something that is going to be between INR 20,000 crore and INR 88,000 crore. I guess just wanted to get a sense of how that would flow in subsequent. Yeah. Quarters and years. Yeah. Both your points are valid ones. Like, see, on the first one, yes, it is currently at acquisition. It is a fair value from, you know, on purpose it's a fair value process, but yes, it's heavily determined by purchase price considerations, and that's what you see here. A fair value process formally with the auditors, et cetera, is ongoing, and it will continue over the course of the next six months. We will finalize it. I would be surprised if there will be any outcomes which are materially different from purchase price considerations. You should assume that valuation processes are by and large closed, even though the audit process on that and creating the final fair value reporting reports, et cetera, will continue over the coming months along with the auditors. Now, that leads us naturally to the second question that you have, which is that A, the interest that you are earning is on a book which is larger than 20,000. The interest cost that you are bearing is on roughly 19,000-20,000, and so the margins might be a little bit larger than what the spreads actually indicate. That point is absolutely valid. That is one of the underlying business cases of why you would do a transaction like this. As to what the actual impact of that might be, you just have to wait and watch. Like, when you see next quarter's numbers, you will get a little bit of a sense of what that expanded thing might look like. We don't want to speculate on that at this point. Understood. I guess lastly just a quick follow-up on that. I think the rating, the credit ratings was kind of, I guess, put on review of both the acquisition and second the restructuring. Any sense on, I guess, what the timing for the rating agencies to complete that might look like? We will be having conversations with the rating agencies now that the results are over, et cetera. We will have our quarterly conversations with them. This is not a thing that we control or we would want to push some timelines. This is the sort of thing that the rating agencies will take their own call and in their own time. If they deem the level of progress in the company to have been adequate, they will take the calls that are appropriate. We don't want to unduly influence that process. We are confident that we are doing all the right things. The balance sheet is moving in the right direction, and all the metrics that rating agencies typically tend to care for, all metrics are trending in the right direction. Hopefully we will see some favorable outcomes over the next few quarters. It is their call to make, not ours. Got it. Understood. Thank you for that. That's it from my end. Thank you. Ladies and gentlemen, due to time constraints, we will take that as the last question. I now hand the conference over to Mr. Hitesh Dhaddha for closing comments. Thank you, and over to you, sir. Thanks, everyone, for coming on the call. If you have any more questions, please feel free to reach out to the IR team. Thank you. Thank you. Ladies and gentlemen, on behalf of Piramal Enterprises Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.