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ICICI Securities research report on Poonawalla Fincorp

Poonawalla Fincorp (Poonawalla) reported mixed Q4FY25 earnings with PAT at INR 0.6bn or 76bps RoA, wherein opex continued to be elevated. However, there was some respite on credit cost front with sequential decline. AUM growth continued to be robust with 15% QoQ and ended the year with 43%. Post Mr. Arvind Kapil taking over as MD & CEO in Jun’24, Poonawalla had made accelerated provisions towards the erstwhile STPL portfolio in Q2, post which credit cost has been improving QoQ. Moreover, Poonawalla has launched 6 new businesses, of which 5 were launched in the past 2 months. Continued investments in new businesses, footprint expansion and investments in tech may keep opex elevated for the next two quarters as well, post which some respite could be seen in H2FY26.

Outlook

We believe AUM growth is likely to be 30-35% (conservative vs management guidance of 35-40%) for FY26E as well as FY27E and RoA could improve to 1.5-2% from negative in FY25. In absolute terms, PAT is likely to be at INR 7bn for FY26E and could almost double in FY27E on the back of improving operating performance. Moreover, RoE is estimated at 8%/14% for FY26/27E. However, we would like to monitor the performance on credit cost front in this high growth phase. We, therefore, upgrade our rating to HOLD (Reduce earlier) with a revised TP of INR 360 (INR 265 earlier), valuing the stock at 2.8x FY27E (5-year average for 1-year forward P/B) as we roll over to FY27E vs 2.1x FY26E earlier.

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