Poonawalla Fincorp's sustained pace of investments across distribution and tech initiatives is likely to keep opex ratios elevated with gradual operating leverage gains. Product mix shift toward higher-yielding products drove positive surprise on net interest margins but it continues to weigh on credit costs. With portfolio seasoning yet to play out and elevated credit costs, the NBFC has limited levers for RoA reflation above ~2.2%, says HDFC Securities.
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HDFC Securities Institutional Equities
Poonawalla Fincorp Ltd.'s earnings came in ahead of HDFC Securities estimates, aided by a 26-basis points sequential improvement in net interest margin, while assets under management grew 55% YoY.
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However, credit costs remained elevated at around 2.3%, limiting the scope for further RoA improvement. The brokerage maintained its 'Reduce' rating while raising the target price to Rs 395 from Rs 390.
The brokerage also noted that Poonawalla Fincorp's RoA/RoE improved to 2.2%/11.2% in Q2, largely led by NIM reflation. However, it expects limited further improvement in profitability, going ahead (RoA/RoE at ~2.1%/13% by FY29E), with high credit costs offsetting operating efficiency gains.
The NBFC's portfolio seasoning remains a key monitorable with astronomical growth in the past couple of years (~61% 2 year CAGR) and increasing share of unsecured segments. Further, the brokerage expects moderation in AUM growth to ~33% CAGR over FY27-FY29E, with increasing scale.
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