Reduce Poonawalla Fincorp; target of Rs 280: Emkay Global Financial

Emkay Global Financial's research report on Poonawalla Fincorp

Poonawalla reported another patchy quarter (Q4) with elevated credit cost (3.03% of AUM) and opex (4.6% of AUM) pushing profitability materially lower (RoA of 0.76%). With sharp focus, and investment in technology and AI capabilities, the mgmt is confident of achieving strong growth with better-thanindustry credit cost, across existing offerings and the 6-7 newer products. To reflect the Q4 developments and mgmt commentary, we adjust our FY26-27 estimates, building in Rs40bn capital raise in FY26 aimed at supporting strong growth which would lead to ~25% increase in FY27E/FY26E BVPS. Led by the rise in opex/credit cost, our RoA/RoE stand reduced for FY26E/27E. We retain REDUCE on the stock, revising up Mar-26E TP (+12%) to Rs280 (FY27E P/BV: 1.7x post capital-raise). Given its AAA rating, Parent backing, a credible toplevel team, and wide bouquet of product launches, we see the company logging strong growth delivery. However, given the super-normal growth led by a mix of unsecured and secured products in hyper competitive retail segments, we still see upside risk to our credit cost estimates. Against such a backdrop, amid elevated opex and an unseasoned new book, the asset quality and profitability outcomes are all about a leap of faith in the management.

Outlook

Factoring in the Q4 performance, we revise our FY26-27 estimates: 1) ~5% higher AUM growth; 2) ~26% earnings cut in FY26 and ~9% upgrade in FY27; 3) higher credit cost assumptions; 4) Rs 40bn fundraise in FY26. The adjustments imply a ~3-5% RoE contraction over FY26-27E. We reiterate REDUCE and revise up our Mar-26E TP by 12% to Rs 280, (implying FY27E P/BV of 1.7x).