Reduce Poonawalla Fincorp Ltd for the Target Rs 410 by Emkay Global Financial Services Ltd
Poonawalla continues to deliver strong growth, with AUM reaching ~Rs740bn (~+55% yoy), backed by strong disbursements across products (new businesses contributed ~28% to disbursements). PAT stood at ~Rs3.7bn (up ~22% qoq), while ROA expanded to ~2.18% (vs ~1.98% in 1QFY27), driven by margin expansion, with NIM plus fees improving 16bps qoq to 9.26%, and moderating credit costs. Asset quality improved steadily, with GNPA declining 17bps qoq to 1.20% and 6-MoB 30+ delinquency improving sharply to 0.35% (ex GL). Credit cost in 2Q improved by ~20bps sequentially to 2.2%, supported by robust collection efficiency of ~99.5% and contained slippages. Opex-toAUM increased marginally to 4.15% due to front loading of investment in tech, collections, and branch infrastructure, while AI-driven productivity gains continued despite ongoing business investments. The management reiterated its focus on calibrated growth, with profitability expected to improve, led by strong pricing power and higher disbursement yields. The management expects potential fee caps from proposed insurance commission regulations to be comfortably absorbed via core lending spreads and cross-sell expansion. We retain REDUCE and Sep-27E TP of Rs410, implying FY28E PBV of 1.8x.
Credit cost and asset quality continue to improve
Poonawalla posted 2Q PAT of ~Rs3.75bn (~21.8% qoq increase), driving ROA to 2.18% (up from 1.98% in 1QFY27 and 0.69% in 2QFY26). This was primarily supported by improving margins (NIM + Fee at 9.26%) and reduced credit costs of 2.19% (down ~21bps qoq). Total AUM surged 55.1% yoy to ~Rs740bn, driven by healthy momentum, with new products contributing 28% to the disbursement mix. Asset quality continued to improve, with GNPA/NNPA settling at 1.20%/0.61%, respectively. The company highlighted that 6-MoB 30+ delinquencies dropped to 0.35% (from 0.67% in 1QFY27)
High growth, stronger yields, and AI-led productivity to drive ROA
The management expects strong growth momentum to continue, targeting a 35–40% AUM CAGR over the medium term, driven by scaling new businesses, aggressive gold loan branch expansion, and deeper digital cross-selling. The focus remains firmly on structural, predictable profitability, which is expected to be supported by margin expansion led by strong pricing power, with incremental disbursement yields ~200bps higher than the portfolio yield. Operating leverage is projected to build over the next two years, balancing front-loaded opex with significant AI-driven productivity gains (84 live enterprise AI projects that are actively lowering acquisition costs and enhancing operational efficiency). Finally, on asset quality, the management expects credit costs to improve, attributing the portfolio’s resilience to rigorous, AI-backed cohort calibration, and superior early-vintage performance.
Adjust our estimates marginally; Maintain REDUCE and TP of Rs410
Factoring in 2Q performance, we tweak our FY27-29 estimates marginally; this leads to EPS estimates increasing by 1-2% over FY27-29 (Exhibit 2). We retain REDUCE and maintain Sep-27E TP of Rs410, implying 1.8x FY28E PBV, assuming an equity raise of Rs30bn in FY28E at Rs450/sh.
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