Buy Poonawalla Fincorp; target of Rs 195: Emkay Global Financial
Emkay Global Financial is bullish on Poonawalla Fincorp has recommended buy rating on the stock with a target price of Rs 195 in its research report dated August 15, 2021.
August 18, 2021 / 01:37 PM IST
Emkay Global Financial's report on Poonawalla Fincorp
Poonawalla Fincorp reported profits of Rs645mn, missing our estimate of Rs754mn due to lower NII and NIMs amid a gradual shift toward a secured portfolio. Disbursements remained healthy at Rs17.3bn (+7x yoy, +21.5% qoq), mainly tilted toward secured products like housing. AUM, however, remained flat sequentially at Rs144.2bn. Gross Stage 3 witnessed a surge to ~5.4% from ~3.7% last quarter as lockdowns affected collection efficiency. However, trends are improving. The overall restructured book stands at Rs8.5bn (~5.9% of AUM) against which the company holds a provision of Rs1.5bn, with an additional overlay of Rs2.8bn (~2% of AUM). We continue to believe that Poonawalla Fincorp is well placed in terms of adequacy and liquidity. New management plans to diversify the current portfolio by making an effective mix of secured/unsecured products, i.e. affordable housing, pre-owned cars and business loans from current offerings, and new offerings like LAP, PL, loans to professionals, etc.
With the change in guard, we believe that the company will see superior profitable growth, resulting in a significant improvement in return ratios. We roll forward to Sep'22E and revise the TP to Rs195 (Rs175 earlier), corresponding to 2.2x P/Adj Sep'23E Book (earlier 2.1xP/ABV FY23E) with RoEs of 12.1% and RoA of 3.3%. Maintain Buy with OW in EAP.
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