Hold Poonawalla Fincorp; target of Rs 300: Emkay Global Financial

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Emkay Global Financial's research report on Poonawalla Fincorp

Poonawalla Fincorp Limited (PFL) reported Q3FY23 standalone PAT of ~Rs1.5bn (+15.6% QoQ/+87.5% YoY), driven by margin expansion as PFL continues to pass on rate hikes to its customers and introduce high-yield products to expand its digital offerings. During the quarter, PFL launched new products covering consumption finance, transaction credit, and consumer finance. In a seasonally strong quarter, PFL posted the highest-ever customer acquisition and disbursements of Rs33.7bn (+8.3% QoQ/+157.2% YoY), entirely via the organic route. Direct digital partnership (DDP) contribution to disbursements increased to 66% (Q2: 54%). As a result, AUM grew by 5.8% QoQ/27.6% YoY to Rs139.3bn. Operating expenses declined 3% QoQ, as the firm continued to rationalize its branch network and personnel resource pool. Asset-quality pressures eased with GS3 at 1.69% (Q2: 1.77%) and NS3 at 0.89% (0.94%), with continued provision reversal resulting in quarterly RoA of 4% and RoE of ~9.8%. PFL, in its board meeting held on December 14, 2022, approved the sale of its housing finance subsidiary – Poonawalla Housing Finance Limited (PHFL) – to TPG for a consideration of Rs39bn. As per our analysis, we expect a post-tax gain of ~Rs23.3bn, resulting in a net worth accretion of ~Rs31.5bn in Q1FY24 (Exhibit 4). To account for the sale of PHFL, we change our valuation to be based on the standalone entity and roll over our estimates to Mar-24E.

Outlook

We retain our HOLD rating, valuing the company at a Mar’24E TP of Rs300 (earlier Rs270), using the excess return on equity (ERE) method. Our TP implies Mar-25E P/BVPS of 2.1x for FY25E RoA of ~4.1% and RoE of ~10.4%.