Poonawalla Fincorp Q1 Results Review - Earnings Miss Due To NIM Compression; Loan Growth Strong: Motilal Oswal

Motilal Oswal Report

Poonawalla Fincorp Ltd.’s Q1 FY25 net interest income grew ~37% YoY to ~Rs 5.8 billion (5% miss), while its pre-provision operating profit increased ~47% YoY to ~Rs 4.3 billion (9% miss). Poonawalla Fincorp’s Q1 FY25 PAT grew ~46% YoY and declined ~12% QoQ to ~Rs 2.9 billion (9% miss).

Opex rose ~33% YoY to ~Rs 2.4 billion (~15% above estimate), with the cost/income ratio broadly stable QoQ at ~36% (previous year: ~38%). Provisions stood at Rs 425 million (versus estimated credit costs of ~Rs 500 million).

Poonawalla Fincorp articulated its strategy under the new Managing Director and Chief Executive Officer Mr. Arvind Kapil (excluding- HDFC Bank). The new management team will prioritise scalability by improving collections and distribution. It plans to double its product suite with new product offerings. Risk management will be a key focus area.

We cut our FY25/FY26E earnings by 9%/13% to factor in NIM compression and elevated opex from investments in distribution, management team, and collections.

We model a ~34%/29% AUM/PAT CAGR over FY24-FY26E and expect Poonawalla Fincorp to deliver an return on asset/return on equity of ~4.4%/~17% in FY26. Reiterate Buy with a target price of Rs 465 (premised on 3.3 times FY26E book value per share).

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