Despite strong assets under management growth the Poonawalla Fincorp. stock has been underperforming, declining 18% in fiscal 2025 so far. It has given up nearly 30% from its 52-week high.
From a valuations perspective, the stock seems to be richly valued at 3.4 times TTM, as compared to peers in the NBFC sector. Markets are ascribing it a rich valuation basis the AUM performance it has been giving.
What Is Leading AUM Growth?
Its is mainly the MSME and personal and consumer loan portfolio that has been leading the AUM growth for the company. Asset under management has increased to Rs 28,396 crore in the second quarter of fiscal 2025 from Rs 20,215 crore in the same period last year. The management has guided to achieve an AUM of Rs 1.4-1.7 lakh crore by fiscal 2030.
Management is relying on 10 businesses to drive AUM growth. From small ticket personal loan, LAP, business loans and pre-owned car, they want to broaden their offering to personal loan prime, consumer durables, shopkeeper loans, used CVs, gold loans and education loans.
Where Is The Problem?
Poonawalla Fincorp. sold its secured loan book, which is the housing finance business, in the second quarter of the last fiscal and now is looking to scale loan book via unsecured businesses.
However, its impact on the asset quality is key because that has already deteriorated from 1.36% in Q2 FY24 to 2.10% in Q2 FY25.
Also, the impairment of Rs 909 crore taken by the company in July-September period this fiscal is as much as the quarter's revenue of Rs 997 crore. Of this, Rs 666 crore is contingent provisions.
On the back of this high provisioning, the profitability of the company has taken a beaten, as it reported a loss of Rs 471 crore in Q2 FY25.
Also, the company has been witnessing a change in management, where most of the new team members are previous employees of HDFC Bank Ltd.
These are the ex-HDFC Bank employees who have joined Poonawalla Fincorp:
Arvind Kapil, managing director and chief executive officer.
Shriram Viswanathan Iyer, chief credit and analytics head.
Vikas Pandey and Veeraraghavan Iyer, chief business officers.
Bhaskar Pandey, chief risk officer.
Bholananda Behera, chief compliance officer.
Nitin Sane, chief internal auditor.
What Should Investors Watch Out For?
Some questions that remain from the investor perspective include if Poonawalla will see steady growth with new management. Will the management be able to meet fiscal 2030 guidance?
How the utilisation of contingent provisions pans out will also be a monitorable.
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