 "Poonawalla Fincorp turns volatile post Q2 nos; brokerages mixed on outlook")
Shares of Poonawalla Fincorp hit a 52-week low of Rs 270, falling 9 per cent on the BSE in Monday’s intra-day trade after the company reported disappointing numbers for the second quarter of the 2024-25 financial year (Q2FY25) with a net loss of Rs 471 crore, due to the credit cost of Rs 910 crore, including Rs 670 crore one-time provisioning on the short-term personal loans (STPL) book. The company had posted profit after tax (PAT) of Rs 1,259 crore in a year ago quarter (Q2FY24) and PAT of Rs 292 crore in previous quarter (Q1FY25).
In the past two days, the stock of non-banking finance company has tanked 25 per cent. However, Poonawalla Fincorp has bounced back 20 per cent from the day’s low to hit a high of Rs 323.75 in intra-day trades. At 12:30 pm; the stock was trading 8 per cent higher at Rs 320.15, as compared to 1.4 per cent rise in the BSE Sensex. The average trading volumes at the counter jumped over 10-fold. A combined 14.75 million equity shares changed hands on the NSE and BSE.
In Q2FY25, the company’s assets under management (AUM) rose 40 per cent year-on-year (YoY) at Rs 28,396 crore. AUM mix consists of 33 per cent MSME finance, followed by 28 per cent personal and consumer finance, 19 per cent loan against property and 15 per cent pre-owned car. Net interest income grew 22 per cent YoY at Rs 645 crore.
The management provided comfort by stating that review of the entire portfolio is complete and there should not be any need for additional provision. The company unveiled 6 new products and its omni-channel phygital distribution that shall help it deliver 5-6x AUM growth in the next 6 years.
With the Poonawalla name, strong capital adequacy, AAA rating at his disposal, and past baggage likely cleaned up, the new CEO, Arvind, is trying to build the franchise by hiring competent top and middle management, expanding product and distribution, and tightening the risk management. However, this strategy should moderate profitability over the medium term on account of higher opex, and the execution of this ambitious plan amid tightening regulatory environment and heightened competition will be a daunting task, according to analysts at Emkay Global Financial Services. The brokerage firm reiterated its REDUCE rating on the stock with revised Sep-25E target price of Rs 240 (vs Rs 400 earlier), implying FY26E P/BV of 2x.
Despite the recent correction, the stock trades at a relatively richer valuation of FY26E P/B of 2.5x. While analysts view the new management team and their plan as a more sustainable one, the investors will prefer to watch from the fences over the next few quarters as: 1. Execution of an ambitious growth plan has to be observed closely for progress, as the competitive and regulatory landscape appear difficult; 2. Given the outcome of past scorching growth phase cycle leading to 4 per cent true credit cost over FY21-25E, the investors will take time before differentiating current growth from the past. Against this backdrop, Poonawalla Fincorp shares are likely going to underperform in the near-to-medium term, the brokerage firm said.
However, Motilal Oswal Financial Services has reiterated its 'BUY' rating on the stock with a target price of Rs 350 (premised on 2.7x Sep'26E BVPS). The clean-up of stressed STPL loans on the balance sheet indeed comes across as a disappointment. Recently, the external environment has been tough for the NBFC sector. The stock price has corrected by 40 per cent over the last six months. The near-term outlook will warrant a detailed understanding of the various pillars of execution, and we will look forward to more clarity before taking any rating action, the brokerage firm said in its result update.
Key downside risks are inability to execute its articulated strategy despite a new management team and investments in technology, distribution, and collections; and aggressive competitive landscape leading to pressure on spreads and margins and/or deterioration in asset quality, it added.