Hold Poonawalla Fincorp; target of Rs 390: ICICI Securities

ICICI Securitie's research report on Poonawalla Fincorp

Poonawalla reported PAT of INR 2.92bn, up 46% YoY but down 12% QoQ due to a one-time tax benefit of INR 0.4bn in Q4FY24. This translated into RoA of 4.62% and AUM growth has been healthy at INR 269.7bn, up 52% YoY/8% QoQ. Moreover, AUM has grown at 46% CAGR over the past two years. Asset quality has also been improving with sustained decline in gross as well we net Stage-3 since the past 4–5 quarters. Poonawalla continues to see steady growth in AUM and profitability coupled with superior asset quality metrics. Arvind Kapil has taken over the reigns as MD&CEO during the quarter.

Outlook

Poonawalla Fincorp’s (Poonawalla) new MD & CEO – Arvind Kapil – revealed that its guiding philosophy across businesses would be productivity, predictability and sustainability. This would be achieved via higher investments initially in collection infra, tech and launch of new products. These investments would be made with a long-term horizon and an aspiration of scaling AUM by 5–6x over the next 5–6 years. We believe RoA shall remain in the range of 3.5% - 4% over the next two years due to higher investments in the initial phase and normalisation of credit cost. We resume coverage with HOLD rating and a TP of INR 390, valuing the stock at 3.0x FY26E P/B (vs. 5-year average of 2.2x). A favourable blend of high growth aspiration and the current MD’s track record at HDFC Bank justifies the premium multiple, in our view, which, in turn, instils confidence on execution and Poonawalla’s ability to deliver steady/sustainable return ratios.