Poonawalla Fincorp reports strong Q4 results; brokerage see up to 25% upside

Poonawalla Fincorp Ltd reported a strong set of numbers in the March 2024 quarter and the brokerage firms are largely positive on the counter and see up to 25 per cent upside in the stock. However, a few analysts see the stock to remain range-bound even after a stellar Q4 show.

Pune-based Poonawalla Fincorp reported a 67 per cent jump in consolidated net profit to Rs 332 crore in the March 2024 quarter. The non-banking finance company (NBFC) had posted a net profit of Rs 199 crore during the corresponding quarter of the previous financial year.

Its total income during the quarter rose to Rs 922 crore, against Rs 581 crore in the year-ago period. The shadow lender also registered growth in interest income to Rs 844 crore from Rs 552 crore in the year-ago quarter, with net interest margins (NIMs) of 11.06 per cent for the quarter.

Shares of Poonawalla Fincorp settled at Rs 489.20 on Tuesday, up marginally. The company's total market capitalization stood little less-than Rs 38,000 crore. The stock has zoomed a whopping 2,600 per cent from its covid-19 lows, while the stock is up 50 per cent in the last one year.

Poonawalla Fincorp reported a strong PAT on the back of robust NII growth, contained cost to income and controlled credit costs. NIM improved by 4bps QoQ to 11.06 per cent as the increased cost of borrowings was passed on to the customers through the quarter. Margins remained well above management guidance, said JM Financial.

Poonawalla continued its stellar AUM growth, led by unsecured products while secured business also grew at a healthy pace. We believe, the recent transition in management has strengthened PFL’s execution capabilities further and expect the company to deliver AUM CAGR of 41 per cent over FY24-26E, it added with a 'buy' rating and a target price of Rs 620 apiece.
 

Poonawalla Fincorp’s 4QFY24 performance was in line with our expectations, with NII/PPOP coming in at a variation. AUM growth remained buoyant driven by a surge in disbursements, said Nirmal Bang Institutional Equities. Asset quality saw sequential improvement and the company expects to maintain the long-term GNPA guidance of 1.3- 1.8 per cent, it said.

"Diversified growth, steady opex and strong asset quality performance are key positives. We make marginal changes to FY25/FY26 estimates, factoring in lower yields due to a shift in portfolio mix. Roll forward our valuation to March 2026 adjusted book value of Rs 131 with an unchanged multiple of 3.7 times, giving a target price of Rs 480," it added with an 'accumulate' tag.

Consumer and small business finance, the segments targeted by Poonawalla, have a huge market opportunity, said Motilal Oswal, who believes that the company has levers to maintain its NIM of more than 9 per cent over FY25-FY26E. However, it sees inability to execute its articulated strategy and aggressive competitive landscape leading to pressure on margins as key risks.

"Strong leadership teams across functions, realignment of customer and product segments, and focus on leveraging technology/analytics position it well to build scale and deliver superior risk-adjusted returns," Motilal Oswal added with a 'buy' rating and a target price of Rs 570 on the stock.

Pune-based Poonawalla Fincorp (formerly Magma Fincorp), which is owned by Cyrus Poonawalla group, which focuses on consumer and small business financing, reported Assets under management (AUM) growth of 25 per cent Rs 25,003 crore at the end of March 2024, Poonawalla Fincorp said.

Boosted by strong AUM growth, Poonawalla Fincorp's Q4 FY24 net profit surged, surpassing estimates. With an increasing product share, competitive cost of funds and tech savvy, it targets a best-in-class 40 per cent AUM CAGR over FY24-26, said Anand Rathi Research, retaining a 'buy' rating on the high growth, with a Target Price of Rs 595 on the stock.