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Shares of Poonawalla Fincorp Ltd. gained over 7% on Monday, October 12, after the company reported strong second quarter results, with sharp earnings growth, healthy assets under management (AUM) expansion and improving asset quality.
Global investment banking firms such as UBS, Motilal Oswal and JM Financial are bullish on the stock.
The company reported its earnings after market hours on Friday, October 9. Its (AUM) increased to ₹74,008 crore, up 55.1% from last year's 47,701 crore and up 10.4% from the previous quarter's ₹67,054 crore.
The company's profit after tax (PAT) surged 5.1 times to ₹375 crore from ₹74 crore last year, while its pre-provision operating profit was up 126.6% at ₹877 crore from ₹387 crore.
Poonawalla Fincorp's net interest income (excluding fees) increased 80.6% to ₹1,380 crore from ₹764 crore in the year-ago period.
Its gross non-performing assets (GNPA) improved to 1.2% from 1.37% sequentially and from 1.59% in the previous fiscal.
Its return on assets came in at 2.18%, up 20 basis points from the previous quarter's 1.98% and 149 basis points from the prior fiscal's 0.69%.
The company's management has targeted 35% to 40% compound annual growth rate (CAGR) over the next couple of years. It expects further improvement in return on assets as well. The company's credit cost is at 2.19% and the management expects moderation as newer loan cohorts perform better.
UBS Bullish On Poonawalla Fincorp
Brokerage firm UBS has a "buy" rating on Poonawalla Fincorp with a target price of ₹600 per share. This indicates an upside of 34.4% from its previous close.
UBS said that newer segments newer segments including prime personal loans, gold and education drove stronger growth momentum for the company during the quarter, adding that the AUM growth was also ahead of their expectations.
Poonawalla Fincorp's Net Interest Income (NII) or core income beat UBS projections by 5%, while calculated margins expanded by 31 basis points sequentially, driven by an increase in yield on loans.
Its PPOP was largely in-line as non-interest income was weaker than expected, UBS said.
The brokerage said asset quality continued to show improvement as credit cost declined more than 20 basis points sequentially. As a result, its return on assets improved by 19 basis points from the previous quarter, it added.
Motilal Oswal Sees 27% Upside For Poonawalla Fincorp
The brokerage has a "buy" rating and a target price of ₹570 per share, indicating an upside of 27.7% from its previous close.
Motilal Oswal raised its FY27 and FY28 earnings per share estimates by 3% each to factor in slightly higher net interest margin (NIM), driven by stronger expansion in yields.
It said the stock currently trades at 2.3 times its estimated FY28 price-to-book value. It models a 44% AUM CAGR and 120% PAT CAGR over FY26-28 and expects Poonawalla Fincorp to deliver return on assets of 2.4% and return on equity worth 17% in financial year 2028.
Motilal Oswal said Poonawalla Fincorp delivered a healthy quarter, supported by sustained business momentum and improving asset quality. The growing contribution of new products continues to support yield improvement and NIM expansion, while strong underwriting and collection practices have driven a sequential moderation in credit costs.
The brokerage believes the company's diversified product portfolio positions it well to deliver strong AUM growth. This, along with improving yields, further credit cost moderation and operating leverage, is expected to drive sustained return on assets moderation, the note further said.
JM Financial has upgraded Poonawalla Fincorp to "buy" from its earlier rating of "add" and increased its price target to ₹550 from ₹530 earlier.
Stock reaction
Of the 10 analysts who have coverage on the stock, six have "buy" recommendations while two each have "hold" and "sell" ratings.
Shares of Poonawalla Fincorp were trading 7.1% up at ₹479.3 apiece at 9.22 am on Monday. The stock has gained 10.4% in the past month but is down 0.8% this year, so far.
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