Reduce Poonawalla Fincorp for the Target 440 by Emkay Global Financial Services Ltd
Poonawalla continues to deliver strong growth, with AUM reaching ~Rs671bn (~+62.5% yoy), backed by strong disbursement across products (new businesses contributed ~26% to disbursements). PAT for the quarter came in at ~Rs3.1bn (up ~20.8% qoq), while ROA expanded to ~1.98% (vs ~1.81% in 4QFY26), driven by margin expansion, operating leverage, and moderating credit costs. Asset quality improved steadily, with GNPA at ~1.37% and a sharp improvement in early risk indicators, including lower 6-MoB 30+ delinquency (~0.64%) in 1Q sourcing. Credit cost in 1Q was ~2.4% (~10bps qoq improvement), supported by robust collection efficiency of ~99.6%. Opex-toAUM fell to ~4.06% (by ~7bps qoq), indicating structural scalability and AIdriven productivity gains despite ongoing business investments. The management reiterated its focus on a risk-first approach and calibrated growth, aiming for an exit ROA of 3-3.5% by Jun-28. Following its Rs25bn QIP, capital position remains comfortable, with D/E of 3.82x providing sufficient headroom to sustain growth over the next 4-5 quarters. We retain REDUCE on the stock while raising Jun-27E TP by ~10% to Rs440 (from Rs400), implying 1.9x FY28E PBV (factoring in another Rs30bn equity raise in FY28E at Rs450/sh).
Growth momentum sustained, with improving credit metrics
Poonawalla posted a 1Q PAT of ~Rs3.08bn (~21% qoq increase), driving ROA to ~1.98% (up from ~1.81% in 4QFY26 and ~0.68% in 1QFY26). This was primarily due to NIM of ~9.10% (expanding ~50bps over 4 quarters), reduced credit costs of ~2.40% (~10bps sequential improvement), and continued operating leverage. Total AUM surged ~62.5% yoy to ~Rs670.5bn, driven by robust disbursements where newer segments contributed 26% to the mix (vs 24% in 4Q). Asset quality continued to improve, with GS3/NS3 settling at ~1.37%/0.70%, respectively. The management highlighted that 6-MoB 30+ delinquencies dropped to ~0.64% (from ~1.05% in 4QFY26). Underwriting discipline and strong collections (~99.6% efficiency) yielded a ~15% qoq gain in bucket flows.
Reiterates outlook on growth and road expansion
The management expects strong growth momentum to continue, driven by traction in new businesses, ongoing branch expansion, and deeper digital and AI integration. Focus remains firmly on structural profitability, with ROA expected to scale to 3.0–3.5% by Jun28 from the current 1.98%. This is expected to be driven by margin expansion via higher disbursement yields, operating leverage (despite branch expansion), and moderating credit costs. The management highlighted its strategic liability mix (88.5% long-term debt) helps absorb minor upticks in CoF (~7.72%). Finally, addressing broader asset quality concerns, the management confirmed no signs of stress or rising bounce rates within the IT salaried segment, attributing this resilience to rigorous cohort calibration.
We tweak estimates; reiterate REDUCE while raising our TP to Rs440
Factoring in 1Q performance, we tweak our FY27-29 estimates; this leads to EPS estimates expanding 10-16% over FY27-29 (Exhibit 2). We retain REDUCE while raising Jun-27E TP by ~10% to Rs440, implying 1.9x FY28E PBV, assuming equity raise of Rs30bn in FY28 at Rs450/sh.
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