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Driven by strong, 52% y/y, NII growth, Poonawalla Fincorp’s Q4 FY23 net profit rose 103% y/y to Rs1,813m (far exceeding ARe). We expect robust growth, competitive cost of funds and tech savviness to drive the standalone unit’s 38% loan CAGR over FY23-25. We retain our Buy stance on the company with a 12-mth target price of Rs417, valuing it at 3x FY25e standalone P/ABV, derived using a multi-stage DDM method.

Robust consumer finance-led AUM growth. Driven by the increasing product portfolio and shift to more secured lending, the company’s assets under management increased a robust 37.2% y/y, 15.9% q/q. The focused AUM grew at a faster 73% y/y with growth across its key segments. Disbursements at Rs63bn grew 89% y/y, focusing on short-term loans. Customer acquisitions picked up pace as more than 0.6m customers were added. Niche financing products and the strong tech focus are likely to aid the
expansion of loans at a 38% CAGR over FY23–FY25.

NIM to sustain, productivity improvement seen: NIM further improved despite the increasing interest-rate environment. The NBFC has also recently see a rating upgrade by CRISIL to AAA. As a result, we believe that it can maintain its NIM over FY24-25 at above 10%. Cost-income at 49.3% has improved sharply. As the loan book further scales up, we believe FY24 should see operating leverage kick in.

Valuation. Our 12-mth target price of Rs417 is based on the two-stage DDM model. This implies a ~2.9x FY25e P/BV and ~3x FY25e P/ABV.

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