Buy Poonawalla Fincorp; target of Rs 450: Motilal Oswal

Motilal Oswal's research report on Poonawalla Fincorp

Poonawalla Fincorp (PFL)’s normalized PAT grew 77% YoY to ~INR2.3b (in line). Reported PAT stood at INR12.6b, including extraordinary gain from the sale of HFC adjusted for one-time provisions of ~INR13b. NII grew 73% YoY to INR4.7b, while PPOP jumped 167% YoY to INR3.4b. PFL is dedicated to enhancing productivity, aided by digitization, and is confident about scaling up operations without the need for additional investments in manpower or branches. The cost-income ratio (CIR) fell ~2pp QoQ to ~36.5% (PQ: 38.4%) The company has strong moats on the liability front, supported by its strong parentage. At its current size (one-fifth to one-tenth of peers in similar segments), PFL has a huge opportunity in its target product segments. With a healthy capital position, we believe the company has a long runway of strong loan growth ahead. PFL has laid down a robust foundation for sustainable profitability through initiatives that will lead to lower operating costs (as a % of AUM), higher business volumes, and robust asset quality.

Outlook

We model a standalone CAGR of ~43%/50% for AUM/PAT over FY23-FY26 and expect PFL to deliver a RoA/RoE of 5.1%/19.5% in FY26. Reiterate BUY with a TP of INR450 (premised on 3.3x Sep’25E BVPS).