Poonawalla Fincorp Q3 Results Review - Earnings Inline Despite Net Interest Margin Compression: Motilal Oswal

Motilal Oswal Report

Poonawalla Fincorp Ltd.’s Q3 FY24 net interest income grew 63% YoY to Rs 4.9 billion (6% miss), while pre-provision operating profit jumped 125% YoY to Rs 3.5 billion (inline).

Q3 profit after tax surged 76% YoY to ~Rs 2.65 billion (inline), while nine months-FY24 normalised PAT grew 72% YoY to ~Rs 6.95 billion.

Opex declined 2% YoY to ~Rs 2 billion (~6% lower than estimate), while the cost/income ratio remained broadly stable QoQ at ~36% (previous year: ~57%). Provision writebacks stood at Rs 65 million (versus estimated credit costs of ~Rs 300 million).

Poonawalla Fincorp is dedicated to enhancing productivity, aided by digitisation. It is gearing up for expansion with new products such as co-branded credit card, EMI cards, and dropline flexi products.

Poonawalla Fincorp has laid down a robust foundation for sustainable profitability through initiatives that will lead to lower operating costs (as a % of assets under management), higher business volumes, and robust asset quality.

We model a compound annual growth rate of ~42%/51% for AUM/PAT over FY23-FY26 and expect Poonawalla Fincorp to deliver an return on asset/return on equity of ~5.0%/~20% in FY26.

Reiterate 'Buy' with a target price of Rs 580 (premised on four times FY26E book value per share).

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