Buy Poonawalla Fincorp; target of Rs 370: KR Choksey

KR Choksey's research report on Poonawalla Fincorp

For Q3FY25, Net Interest Income (NII) increased by 25.1% YoY and 9.8% QoQ, reaching INR 6,141 Mn, surpassing our estimates by 3.8% due to lower-than-expected interest expenses. The Pre-Provision Operating Profit (PPOP) stood at INR 3,731 Mn, reflecting a 6.5% YoY increase and a 33.6% QoQ growth. The company reported a net profit of INR 187 Mn for Q3FY25, a significant improvement from the net loss of INR 4,710 Mn in Q2FY25 (vs net profit of INR 2,651 Mn in Q3FY24). Despite near-term profitability pressures, AUM growth of 30-35%, expansion into 11 lending products, and AI-driven risk management strengthen long-term prospects. The completion of senior leadership hiring enhances execution, supporting growth. We trim our adjusted book value of FY26E/FY27E by 4.9%/9.2%, respectively, factoring in higher credit costs and elevated operating expenses.

Outlook

We roll over our valuation to FY27E and revise our target price to INR 370/share (earlier INR 348/ share), implying an 16.6% upside from CMP, based on a 3.0x P/ABV multiple on FY27E ABVPS of INR 123.3. We retain our BUY rating, expecting operational efficiencies and profitability recovery from FY26E onward.