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Healthy quarter driven by NIM expansion and lower credit costs Earnings in line; NIM (calc.) expanded 25bp QoQ and AUM grew ~55% YoY

* Poonawalla Fincorp’s (PFL) 2QFY27 PAT stood at ~INR3.7b (in line). NII grew ~81% YoY to ~INR13.8b (in line). Other income rose ~49% YoY to ~INR2.1b.

* Opex rose 37% YoY to ~INR7.1b (in line), with C/I ratio broadly stable QoQ at ~45% (PY: 57%). Opex to AUM rose ~10bp QoQ to 4.15% due to ongoing investment in branches, collections, and tech Infrastructure. Management indicated that the minor sequential increase remains within the guided range, while operating leverage is expected to improve structurally over the next two years.

* PPoP grew ~127% YoY to ~INR8.8b (in line). Provisions stood at INR3.8b (in line), translating into annualized credit costs of ~2.15% (PQ: 2.35% and PY: ~2.75%). Management shared that 90+ dpd at 6 and 12 MOB for recent originations is ~53% better, indicating stronger early vintage credit performance and sustained improvement in portfolio quality.

* New products have gained strong traction, contributing ~28% of 2QFY27 disbursements (vs. ~26% in 1QFY27), and have reached a meaningful scale to support predictable earnings growth. PFL is targeting AUM growth of ~35-40% CAGR in the medium term, driven by the scale-up in new products, deeper distribution capabilities, and cross-selling opportunities across its retail portfolio. We model AUM CAGR of ~44% over FY26-28E.

* PFL remains confident of an improvement in RoA, driven by higher yields, a favorable product mix, declining credit costs, and a gradual moderation in the opex-to-AUM ratio. These factors, along with healthy AUM growth momentum and operating leverage, are expected to drive earnings growth and strengthen profitability over the medium term.

* We raise our FY27/FY28 EPS estimates by ~3% each to factor in slightly higher NIM (driven by stronger expansion in yields). The stock currently trades at 2.3x FY28E P/BV. We model ~44% AUM CAG R and ~120% PAT CAGR over FY26-FY28E and expect PFL to deliver RoA/RoE of 2.4%/~17% in FY28E. Reiterate our BUY rating with a TP of INR570 (based on 2.7x Sep’28E BVPS).

Strong business momentum; share of new products continues to improve

* AUM grew ~55% YoY and ~10% QoQ to ~INR740b. Disbursements stood at INR5.8b in 2QFY27 (vs. INR5.4b in 1QFY27) in the Prime PL business. .

* PFL remains disciplined in its growth approach, with management highlighting strong business momentum across newer product segments. Disbursements continue to gain traction sequentially, supported by an expanding presence and a wider distribution network. We expect PFL to deliver an AUM CAGR of ~44% over FY26-28E

Highlights from the management commentary

* The company plans to continue investing in 300-400 branches annually, with a sustained focus on scaling gold loans and consumer durable financing.

* Consumer durable financing is gaining traction, with management citing encouraging credit performance among customers who have completed their 8- 9-month loan tenures. Bureau data reportedly indicates nearly 40% better credit quality than the industry benchmark for these seasoned customers.

* Gold loan branches stood at 550 as of Sep’26. Average monthly gold loan disbursements in 2QFY27 stood at INR3.5b (vs INR2.9b in 1QFY27).

Valuation and view

* PFL delivered a healthy quarter, supported by sustained business momentum and improving asset quality. The growing contribution of new products continues to support yield improvement and NIM expansion, while strong underwriting and collection practices have driven a sequential moderation in credit costs. We believe PFL’s diversified product portfolio positions it well to deliver strong AUM growth. This, along with improving yields, further credit cost moderation, and operating leverage, is expected to drive sustained RoA expansion.

* We model ~44% AUM CAGR and ~120% PAT CAGR over FY26-FY28E, and expect PFL to deliver RoA/RoE of 2.4%/~17% in FY28. Reiterate our BUY rating with a TP of INR570 (based on 2.7x Sep’28E BVPS).

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