Buy Poonawalla Fincorp; target of Rs 371: KR Choksey

KR Choksey's research report on Poonawalla Fincorp

Net Interest Income (NII) for Q2FY25 increased by 17.8% YoY (-2.9% QoQ) to INR 5,592 Mn. Pre-Provision Operating Profit (PPOP) stood at INR 2,792 Mn, a sharp decline of 16.8% YoY (-35.4% QoQ) in Q2FY25, which includes a one-time opex of INR 710 Mn. Net loss for Q2FY25 was reported at INR 4,710 Mn compared to net profit of INR 2,916 Mn in Q1FY25 (vs INR 12,589 Mn in Q2FY24). The loss was due to higher provisions of INR 9,096 Mn (vs INR 425 Mn in Q1FY25). Key Monitorable in coming quarters: a) Asset quality trends in the STPL portfolio; b) Execution of new business initiatives and the pace of disbursement growth; and c) Effectiveness of cost optimization measures and operating leverage benefits.

Outlook

We assign a P/ABV multiple of 3.2x (earlier 3.3x) to FY26E ABVPS of INR 116.1 per share and revise our target price to INR 371/share (Previous target: INR 455). This implies a potential upside of 16.1% and accordingly, we have retained our “BUY” rating for Poonawalla Fincorp Ltd.

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