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Multiple growth engines powering a stronger profitability profile NIM (calc.) up ~25bp QoQ; asset quality improves in seasonally weak 1Q

* Poonawalla Fincorp’s (PFL) 1QFY27 PAT grew ~392% YoY/~21% QoQ to ~INR3.1b (~7% miss).

* NII grew ~87% YoY to ~INR12b (in line). Other income declined ~4% QoQ to ~INR2.2b, primarily because of lower assignment income. Opex rose 42% YoY to ~INR6.3b (in line), with C/I ratio declining to ~45% (PQ: ~46% | PY: ~58%). PPoP grew ~142% YoY to ~INR7.8b (in line). Credit costs stood at INR3.7b (in line), translating into annualized credit costs of ~2.3% (PQ: 2.6% | PY: ~2.7%).

* PFL is targeting AUM growth of ~35-40% CAGR over the next two years, driven by the scale-up in new products, deeper distribution capabilities, and cross-selling opportunities across its retail portfolio. New products have gained strong traction, contributing ~26% of 1QFY27 disbursements (vs. 24% in 4QFY26), and have reached a meaningful scale to support predictable earnings growth.

* Gold loans remain a key growth driver, supported by geographic expansion and branch-led cross-selling opportunities, while Prime PL and other retail segments are expected to provide incremental momentum through higher digital adoption. The company’s presence across varied borrower segments, collateral profiles, and macro drivers provides growth resilience, with momentum across segments offsetting any moderation in individual businesses. Its AI-native and digital-first model supports scalable growth through stronger customer identification, underwriting capabilities, and operating leverage.

* PFL maintains strong asset quality, supported by disciplined underwriting, calibrated growth, and a balanced portfolio mix that will help smoothen credit losses through cycles. Management shared that it has not observed any stress in the loans given to customers from the IT sector and the company remains focused on lower-risk customer segments with stable repayment behavior. Collection efficiency remains robust at ~99.6%, aided by AI-led prioritization, digital-first collections, and automated workflows.

* PFL remains confident of stable RoA expansion and targets RoA of ~3.0- 3.5% by Jun’28, supported by improving yields, a better product mix, declining credit costs, and a gradual moderation in the opex-to-AUM ratio. The company expects these factors, along with healthy AUM growth momentum and operating leverage, to drive earnings growth and strengthen profitability over the medium term.

* The stock currently trades at 2.9x FY27E P/BV. We model ~43% AUM CAGR and 116% PAT CAGR over FY26-FY28E and expect PFL to deliver RoA/RoE of 2.4%/~16% in FY28E. Reiterate our BUY rating with a TP of INR570 (based on 3.0x Mar’28E BVPS).

Valuation and view

* PFL delivered a strong quarter, with steady business momentum, improving profitability indicators, and stable asset quality. The company remains well positioned to drive growth through its diversified product portfolio, improving yields, declining credit costs, and operating leverage-led RoA expansion. While consistent improvement in the RoA trajectory will remain a key monitorable, the company’s disciplined underwriting approach, strengthening risk management framework, and improving business mix provide comfort on the sustainability of AUM growth and profitability trajectory.

* We model ~43% AUM CAGR and 116% PAT CAGR over FY26-FY28E and expect PFL to deliver RoA/RoE of 2.4%/~16% in FY28E. Reiterate our BUY rating with a TP of INR570 (based on 3.0x Mar’28E BVPS).

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