Piramal Finance (formerly PCHFL) - ₹85,000 Cr AUM at ICRA AA, But Can You Really Outrun the DHFL Ghost?

Bond Opportunities
1

Piramal Finance Limited is one of those names where the rating says one thing and the credit history says something quite different. ICRA AA (Stable), ₹85,756 crore AUM, ₹27,172 crore net worth, 2.5x gearing. On paper, this looks like a solid large-cap NBFC credit. In practice, Piramal Finance carries more baggage than almost any other AA-rated lender in India. The DHFL acquisition, the legacy wholesale book that bled ₹43,000 crore down to ₹6,300 crore with a 25% average haircut on resolutions, the AIF exposure mess after RBI’s December 2023 circular, and a corporate structure so convoluted that NCLT only approved the PEL-into-PFL reverse merger in September 2025.

I think this is one of the most interesting credits on BondScanner right now because the debate isn’t about whether the company will survive (it will, the net worth is massive) but whether the retail transformation story is real or whether the headline numbers are masking ongoing legacy pain through one-off gains and accounting adjustments.

Let me walk through what I’ve found.

Background: Piramal’s financial services story starts with the original Piramal Capital & Housing Finance Limited (PCHFL), which was a wholesale-heavy lender focused on real estate developers and large corporates. In 2021, PCHFL was selected as the successful resolution applicant for DHFL (Dewan Housing Finance Corporation), one of the most spectacular NBFC failures in Indian history. The erstwhile PCHFL was reverse-merged with DHFL, and the combined entity was rechristened PCHFL. Fast forward to 2025: the company changed its name to Piramal Finance Limited, received an NBFC-ICC licence from RBI in April 2025 (no longer classified as an HFC), and completed the reverse merger of Piramal Enterprises Limited (PEL) into PFL in September 2025.

If you’re confused by the corporate history, you’re not alone. ICRA’s own rationale has to explain the merger chain in multiple paragraphs. The net effect is that PFL is now the single surviving entity housing the entire Piramal financial services business, with PEL’s debt instruments having migrated to PFL.

The portfolio as of June 2025 (consolidated):

  • Total AUM: ₹85,756 crore

  • Retail book: 80% of AUM (up from 9% in March 2021 and 33% in March 2022)

  • Secured retail: Housing loans 33%, LAP 22%, used car loans 5%

  • Unsecured retail: Business loans 6%, salaried personal loans 7%, digital loans 4%, microloans 1%, loan against mutual funds 1%, others 2%

  • Wholesale 2.0 (new corporate book): 12% of AUM (₹10,425 crore), avg ticket ₹74 crore

  • Legacy wholesale 1.0: Less than 10% (₹6,327 crore, down from ₹43,174 crore in March 2022)

  • Average retail ticket size: ₹15 lakh

  • No single state above 19% of AUM

  • Branch network: 517 conventional + 76 microfinance branches across 26 states/UTs

Financials (consolidated, ICRA rationale September 2025):

FY2024: Total income ₹10,058 crore (reported ₹10,178 crore including one-offs), PAT negative ₹1,684 crore, total managed assets ₹84,228 crore, RoMA negative 1.9%, gearing 2.1x, gross stage 3: 2.1%, CRAR 25.6% FY2025: Total income ₹9,403 crore (reported ₹10,612 crore including one-offs), PAT ₹486 crore, total managed assets ₹1,01,945 crore, RoMA 0.5%, gearing 2.7x, gross stage 3: 2.8%, CRAR 23.6% Q1 FY2026: Reported total income ₹2,694 crore, PAT ₹276 crore, total managed assets ₹1,06,128 crore, RoMA 1.0% (annualised), gearing 2.8x, gross stage 3: 2.8%, CRAR 19.3%

The net worth of ₹27,172 crore looks impressive until you understand how it got there. A large part of it was built through: (a) ₹18,173 crore of equity raised during FY20-FY21, (b) gains on the sale of Shriram Finance stake (8.34% sold in June 2023), (c) sale of Shriram Investment Holdings in FY24, (d) reversal of deferred tax liability related to the DHFL transaction, and (e) recoveries from previously written-off assets. These are real economic gains, but they’re one-off in nature. The recurring profitability of the lending business has been modest at best. RoMA went from negative 1.9% in FY24 to 0.5% in FY25 to 1.0% annualised in Q1 FY26. The growth book (retail + wholesale 2.0) is running at 1.5-1.9% PBT/AMA, which is reasonable but not outstanding for the level of complexity involved.

The legacy wholesale 1.0 book is the skeleton that keeps rattling. ₹43,174 crore in March 2022 has come down to ₹6,327 crore by June 2025. That’s roughly ₹37,000 crore of rundown in three years, with an average haircut of 25% on resolutions and settlements. So the company took roughly ₹9,000+ crore of cumulative credit costs on this book. The remaining ₹6,327 crore has provisions of ₹564 crore (PCR of 8.9%), which ICRA notes has declined in recent quarters due to resolution of large exposures. Management says incremental losses from the residual legacy AUM won’t erode net worth, pointing to expected one-off gains from AIF recovery, residual Shriram investments (book value ~₹1,700 crore), Piramal Imaging SA proceeds, and potential DHFL-related tax benefits. But these are all “expected” gains, not realised ones.

The CRAR at 19.3% (June 2025) is another number that needs context. ICRA explicitly notes a gap between reported net worth and Tier 1 capital due to investments in Shriram entities, AIF units, the Pramerica Life Insurance JV, and deferred tax assets. The adjusted total debt/net worth (stripped of these investments and DTAs) was estimated at 4.0x as of June 2025, which is a very different number from the headline 2.5x gearing. Management expects CRAR to improve by about 245 bps post-merger as capital knocked off for inter-company investment gets released.

Funding: NCDs 40%, bank loans 31%, commercial paper 11%, ECBs 10%, securitisation 8%. The NCD-heavy funding mix reflects Piramal’s history as a wholesale lender that relied on market borrowings. The investor base has diversified (banks 48%, mutual funds 12%, ECBs 10%, individuals/corporates 9%, insurance/employee benefit funds 9%). Raised ₹21,318 crore of long-term debt in FY25 alone. Liquidity looks adequate: ₹9,070 crore cash/liquid investments (13% of borrowings), covering about 3 months of repayment obligations.

Open questions for the forum:

  • Is the 80% retail transformation genuine, or is it masking the real issue which is that the legacy book losses haven’t fully played out?

  • At AA rating, how much spread should Piramal trade vs a “clean” AA like Bajaj Finance or HDFC? Is the current 50-100 bps premium adequate?

  • The unsecured retail book (business loans, personal loans, digital loans, microloans) is about 20% of AUM. That segment is seeing industry-wide stress. How does Piramal’s unsecured book compare?

  • Given the corporate restructuring complexity (DHFL merger, PEL reverse merger, NBFC relicensing), is there execution risk around the integration itself?

Disc: Not invested. Evaluating for the AA allocation.

2

The DHFL history deserves explicit discussion because it’s the reason many institutional investors remain cautious on Piramal despite the AA rating.

DHFL wasn’t just any NBFC failure. It was a fraud-laden collapse where the promoter (Kapil Wadhawan) was arrested for siphoning funds, creating phantom borrowers, and channeling money through shell companies. When Piramal acquired DHFL through the insolvency process, it took over a book that included genuine performing housing loans (mostly affordable segment, which is now the good part of PFL’s retail book) alongside a legacy of dubious wholesale exposures, questionable AIF structures, and assets where the underlying cash flows were impaired or non-existent.

Piramal essentially bought DHFL at a discount to book and has been working through the cleanup for four years. The 25% average haircut on ₹37,000 crore of legacy rundown tells you the quality of what was in that book. Some of those exposures were legitimate real estate developer loans that went bad in the IL&FS aftermath. Others were, to put it diplomatically, of questionable provenance from the Wadhawan era.

For bondholders, the relevant question isn’t the history itself but what’s left. ₹6,327 crore of legacy wholesale with 8.9% provision coverage means roughly ₹5,764 crore of net exposure. Against a net worth of ₹27,172 crore, that’s 21% of net worth still tied up in legacy assets. If the remaining book takes a 25% haircut (same as historical average), that’s another ₹1,400+ crore of credit costs. Management says one-off gains will cover it. Maybe. But “expected” one-off gains covering “expected” legacy losses is a balancing act that leaves no margin for error.

The AIF exposure is the other baggage item. RBI’s December 2023 circular required NBFCs to provision against investments in AIFs that had downstream exposure to their own borrowers. Piramal had meaningful AIF exposure, and while some of the provisioning has been reversed in recent quarters (contributing to the improvement in reported total income), the regulatory treatment of these structures remains an evolving area.

3

I want to give the other side because I think the bears on Piramal are fighting a credit that’s actually improving faster than they expected.

The retail transformation is real. Going from 9% retail in March 2021 to 80% in June 2025 isn’t a cosmetic shift. That’s ₹68,000+ crore of retail AUM built in four years across housing loans, LAP, used car finance, personal loans, business loans, and digital lending. The average ticket size of ₹15 lakh with geographic diversification (no state above 19%) means this isn’t a concentrated bet on one product or one geography. It’s a genuine multi-product retail franchise.

The Q1 FY26 numbers show the inflection point more clearly than any prior quarter. RoMA at 1.0% annualised, PAT of ₹276 crore in a single quarter, and the growth book running at 1.5-1.9% PBT/AMA. If the company can sustain 1.5% RoMA through FY26 on a ₹1,00,000+ crore managed asset base, that’s ₹1,500 crore of annual PAT. Against net worth of ₹27,172 crore, that’s about 5.5% ROE, which isn’t spectacular but it’s the first time Piramal’s lending business is generating meaningful recurring earnings.

The capitalisation buffer is genuinely large. ₹27,172 crore net worth with 2.5x gearing, even adjusted for the investments and DTAs (4.0x adjusted), gives substantial room to absorb losses. The remaining legacy book of ₹6,327 crore could theoretically go to zero and Piramal’s net worth would still be above ₹21,000 crore. That’s not going to happen (there’s real collateral behind most of these exposures), but the point is the equity cushion is thick enough to absorb a bad outcome on the legacy without threatening debt holders.

Funding diversification has improved materially. From 61% NCDs and 27% bank loans in March 2023 to 40% NCDs and 31% bank loans by June 2025, with ECBs at 10% and securitisation at 8%. The fact that banks have increased their exposure from 27% to 31% of Piramal’s funding mix tells you the banking system is getting more comfortable with this credit, which is a form of independent validation that doesn’t show up in the rating letter.

4

Two things about the unsecured retail book that deserve attention.

First, roughly 20% of Piramal’s AUM is now unsecured: business loans (6%), salaried personal loans (7%), digital loans (4%), microloans (1%), and others (2%). This is the same segment where the broader industry has been seeing stress in recent quarters. RBI’s risk weight increase on unsecured lending in November 2023 (partially reversed later) was specifically aimed at cooling this segment. ICRA flags this explicitly: “the Group needs to demonstrate a sustained track record in retail lending, particularly in the unsecured segment, which includes business loans, personal loans, and digital loans, wherein the industry has witnessed an uptick in stress in recent quarters.”

For a company that’s only been doing retail lending at scale for three years, the unsecured book is the part with the thinnest track record and the highest inherent risk. The housing loans and LAP (55% of AUM combined) are secured against property, which provides a recovery floor even in a stress scenario. The used car book (5%) is secured against depreciating assets. But the unsecured 20% is where credit costs will spike if the economy slows. And at ₹17,000+ crore of unsecured exposure, even a 3-4% credit cost on that segment alone means ₹500-700 crore of annual losses.

Second, the target customer segment. ICRA notes that Piramal’s borrowers “primarily comprise micro and small business owners and self-employed individuals with modest credit profiles and limited credit history.” This is not the same customer as Bajaj Finance or HDFC’s personal loan borrower. These are the same segments where the MFI and small-ticket unsecured lending stress has been concentrated over the past year. Piramal is building a multi-product franchise that includes both premium segments (housing loans) and vulnerable segments (microloans, digital loans to self-employed). The blended asset quality might look fine as long as the housing book performs, but the tail risk in the unsecured portion is real.

5

Two things about the unsecured retail book that deserve attention.

First, roughly 20% of Piramal’s AUM is now unsecured: business loans (6%), salaried personal loans (7%), digital loans (4%), microloans (1%), and others (2%). This is the same segment where the broader industry has been seeing stress in recent quarters. RBI’s risk weight increase on unsecured lending in November 2023 (partially reversed later) was specifically aimed at cooling this segment. ICRA flags this explicitly: “the Group needs to demonstrate a sustained track record in retail lending, particularly in the unsecured segment, which includes business loans, personal loans, and digital loans, wherein the industry has witnessed an uptick in stress in recent quarters.”

For a company that’s only been doing retail lending at scale for three years, the unsecured book is the part with the thinnest track record and the highest inherent risk. The housing loans and LAP (55% of AUM combined) are secured against property, which provides a recovery floor even in a stress scenario. The used car book (5%) is secured against depreciating assets. But the unsecured 20% is where credit costs will spike if the economy slows. And at ₹17,000+ crore of unsecured exposure, even a 3-4% credit cost on that segment alone means ₹500-700 crore of annual losses.

Second, the target customer segment. ICRA notes that Piramal’s borrowers “primarily comprise micro and small business owners and self-employed individuals with modest credit profiles and limited credit history.” This is not the same customer as Bajaj Finance or HDFC’s personal loan borrower. These are the same segments where the MFI and small-ticket unsecured lending stress has been concentrated over the past year. Piramal is building a multi-product franchise that includes both premium segments (housing loans) and vulnerable segments (microloans, digital loans to self-employed). The blended asset quality might look fine as long as the housing book performs, but the tail risk in the unsecured portion is real.

6

The “net worth is inflated by one-offs” argument is the one I keep coming back to, and I think it’s the most intellectually honest concern about this credit.

Piramal’s net worth went from about ₹16,000 crore (post-DHFL acquisition, early FY22) to ₹27,172 crore (June 2025). That’s ₹11,000 crore of growth in three years. Where did it come from?

Equity raise: ₹18,173 crore during FY20-FY21 (a large part of which predated the period in question, but funded the DHFL acquisition). After that, no fresh equity. Gains from Shriram Finance stake sale (8.34% stake, June 2023). Gains from Shriram Investment Holdings sale (FY24). Reversal of DTL related to DHFL. Recoveries from written-off assets. Minus roughly ₹9,000+ crore of cumulative credit costs on the legacy wholesale book. Plus the equity share buyback that consumed part of the Shriram proceeds.

Strip out all the one-offs and you’re left with core lending profitability that only turned positive in FY25 at 0.5% RoMA. The net worth is real in an accounting sense, it’s not fabricated, but it was built through corporate transactions and investment gains rather than through the lending business generating sustainable returns. For a company that wants to be seen as a retail lending franchise, the core lending profitability needs to improve substantially before the net worth trajectory becomes self-sustaining.

The residual Shriram investments (book value ~₹1,700 crore, classified as held for sale) are the last major investment buffer. Once those are sold, Piramal has to stand on its own lending economics. No more Shriram gains to offset legacy losses. No more DTA reversals. Just the retail book generating returns. That transition point is probably 12-18 months away, and how the company performs through it will determine whether the AA rating is justified by fundamentals or held up by the memory of a large net worth.

7

Good debate. This is one of the more complex credits we’ve discussed and the views here reflect the genuine market divide on Piramal.

The bull case: AA-rated, ₹27,172 crore net worth (largest among non-bank, non-HFC lenders outside the top 3-4 names), 80% retail book with genuine product and geographic diversification, legacy wholesale reduced to under 10% of AUM, improving profitability trajectory (1.0% RoMA in Q1 FY26), diversified funding with ₹9,070 crore liquidity buffer, and management that’s demonstrated ability to manage a complex restructuring. The DHFL chapter is ending, and what’s left is a ₹85,000 crore diversified retail NBFC with one of the largest capital bases in the industry.

The bear case: The net worth was built through equity raises and investment gains, not lending profitability. The legacy wholesale still has ₹6,327 crore of exposure at 8.9% provision coverage. The unsecured retail book (~20% of AUM) is untested through a cycle and targets vulnerable borrower segments. CRAR at 19.3% has a meaningful gap from Tier 1 capital due to investments, AIFs, and DTAs (adjusted leverage is 4.0x, not 2.5x). The corporate structure only just simplified in September 2025. And the DHFL association, however unfair to the current management, creates a perception overhang that affects secondary market liquidity and pricing.

My framework: Piramal at AA trades roughly 50-100 bps wider than “clean” AA names like Bajaj Finance or HDFC. For a 2-3 year NCD, that extra spread compensates adequately for the legacy tail risk if you believe the ₹27,172 crore net worth provides genuine loss absorption. The risk scenario isn’t default (virtually impossible at this capitalisation level). The risk scenario is a further downgrade to AA- if the retail book underperforms and legacy losses exceed the expected one-off gains. But even at AA-, you’d still have a very creditworthy lender with a large equity base.

I’d size Piramal at 5-8% of a fixed income portfolio for someone comfortable with the complexity. The AA rating, net worth, and diversified retail book make it a legitimate large allocation. But I’d skew toward shorter tenors (2-3 years) rather than 5+ years, because the next 12-18 months are when the transition from “one-off-driven profitability” to “sustainable lending returns” either happens or doesn’t. Will update when the H1 FY26 results come out and the post-merger financials are available.

Disc: Not invested. Planning to allocate in the AA bucket once post-merger financials provide clearer visibility.