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Poonawalla Fincorp (PFL) reported another strong quarter (Q1FY26) in terms of growth, while credit cost remains elevated and margins remain soft, dragged down by the STPL book, which now forms only 4% of the overall portfolio. The management maintains its growth guidance of 35-40% and NIM hitting 9% levels in the next 3-4 quarters, with credit cost at 1.3-1.5%. Given its diverse high-yield offering across products, the management expects each product segment to deliver RoA above 3% – with overall RoA guidance of 3-3.5% in FY28. The management also highlighted that it is leveraging tech and AI across business functions which would result in operational efficiency and thus in opex moderation as projects are implemented. Given the high opex and the unseasoned book, asset quality and profitability still hinge on trust in management. We tweak our FY26-28 estimates; retain REDUCE and Jun-26E TP at Rs310, implying FY27E P/B of 1.6x.

Profitability remains under pressure from elevated credit costs and expenses

PFL reported Q1 PAT of Rs 626mn, impacted by higher credit costs, increased opex, and softer margins due to the legacy STPL book. The management indicated that opex will stay elevated in the near term due to expansion and tech investments. On the credit cost front, the management is seeing multiple comfort streams, with the reduced STPL book now at 4% (vs 8% in Mar-25), higher 0DPD, and lower bounce rates in the new book – credit cost of 1.43% in 12 core products. Additionally, the management mentioned that the new products are gaining good momentum (contributing to 11% of total disbursement), leading to strong AUM growth of 15% sequentially. Overall asset quality is stable, with GS3/NS3 at 1.84%/0.85%, respectively.

Strong growth now, with profitability in sight

The management maintains its ~35-40% risk-adjusted growth target, driven by strong traction in the new products segment, expanding branch network, and improved digital experience. AI-led efficiencies across functions are expected to enhance credit underwriting and collections, and support scalable growth. With the clean-up largely done—legacy STPL now down to 4% of the book—the management is confident of keeping credit costs contained in the 1.3-1.5% range and expanding margins to 9% in the near term. Supported by operating leverage, such factors are expected to drive profitability, with RoA reaching 3-3.5% in the medium term (FY28). The management also stated that the Promoter would infuse Rs15bn via preferential equity at Rs452.5/sh, strengthening its capital base and reinforcing confidence in the company’s long-term strategy. We have already built in Rs80bn total equity capital raise at Rs450/sh.

We adjust FY26-27 estimates; maintain REDUCE

Factoring in the Q1 performance, we tweak our FY26-28 estimates, resulting in a 5%/2% cut in FY26E/27E EPS. We reiterate REDUCE, with unchanged Jun-26E TP to Rs310, implying FY27E P/BV of 1.6x.

Earnings Call Highlights

• The management indicated digital platforms, in-house AI models, and advanced risk analytics being its core strengths, and driving efficiency across sourcing, underwriting, and collections, while giving the company a clear edge over competitors.
• The management highlighted that demand for retail loans remains strong, thus reflecting positive economic sentiment. The management emphasized a strategic shift toward building a more secured loan book for FY26, with plans to gradually increase unsecured lending later. It remains committed to a ‘risk-first’ approach, always prioritizing risk management over pure growth.
• The management indicated that after a solid year focused on building the basics, the company is shifting gears. Over the next 3-4 quarters, the focus is squarely on scaling AUM. As of Jun-25, AUM stood at Rs412.73bn—up 53% YoY and 15.8% QoQ. Disbursements came in at Rs106.51bn, up 13.6% QoQ. The management remains confident and reiterate its AUM growth target of 35-40%.
• Overall credit cost improved to 2.61% across business segments, down by 53bps sequentially. For the 12 core products (excluding the legacy STPL book), credit cost stood at 1.43%. Around 80% of the AUM is now driven by risk-calibrated portfolios, reflecting PFL’s strong underwriting, collections, and portfolio management. While the management maintains credit cost guidance of 1.5-2%, it remains confident that its structured approach will drive further improvement in credit cost metrics over the next 2-3 years, supporting sustained profitability..
• GNPA was steady at 1.84%, net NPA at 0.85%, and PCR at 53.93%. The legacy STPL portfolio has been brought down to 4% of AUM from 8% in Mar-25, with credit cost in the segment falling, from Rs1.37bn to Rs640mn QoQ.
• On the liability front, the share of NCD jumped from 7% to 24% YoY, with another Rs10bn added in July. To further shore up the capital base and diversify, the Board approved Promoter equity infusion of Rs15bn at Rs452.5/share. As of Q1FY26, the D/E stood at 3.72x, capital adequacy ratio at 20.55%, and liquidity coverage ratio at a healthy 130%.
• Key business highlights: The company is seeing strong momentum across product lines. LAP book grew 128% YoY and 22% QoQ, while BL rose 57% YoY and 10% QoQ. The newly launched Prime Personal Loans have picked up pace, crossing a monthly run rate of over Rs3bn in Jun-25. In Gold loans, 80 branches are live now which are mostly in Tier 2 and 3 cities; PFL targets scaling these up, to 400 by Mar-26. The CD financing business has signed up 3,000 dealers so far, aiming for 12k by year-end; in June alone, it acquired 15k customers and disbursed Rs340mn. Commercial vehicle loans have disbursed Rs920mn since the launch in March, while Education loans has seen disbursement of Rs560mn across >4k files sanctioned in FY26 so far.
• On the risk management front, the management highlighted that 60-70% of the MSME portfolio is secured, with a large share backed by self-owned property through LAP loans, which continue to perform well. It also informed that the underwriting process excludes MSME borrowers (rejects) with more than 2-3 recent credit inquiries, thus helping maintain portfolio quality. Additionally, the rollout of automated field agent allocation has improved resource efficiency and cut turnaround time from days to just a few hours.
• The management reiterated its cautious approach toward operating expenses— continuing to invest in new businesses and distribution—while expecting digital and AIdriven efficiencies to offset costs over time. The goal is to reach a steady-state RoA of 3- 3.5% by FY28, with new business lines structured to deliver similar post-tax returns. The focus remains on expanding both, digital capabilities and the physical network.
• Guidance
• AUM will continue to grow in the 35-40% range
• NIM to reach 9% levels in the next 3-4 quarters
• Credit cost on a stable state basis to remain range-bound at 1.3-1.5%
• RoA to reach 3-3.5% by FY28

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