ICICI Securities has given Buy recommendation for Poonawalla Fincorp with a target price of Rs. 335 in its research report issued on Jul 29, 2022

ICICI Securities research report on Poonawalla Fincorp

For Poonawalla Fincorp (PFL), Q1FY23 and FY22 were defining periods of translating strategy into execution. Company delivered on its stated strategy in Q1FY23 registering an RoA of 3.4%, organic disbursement growth of 26.5% QoQ, focused AUM growth of 13% QoQ, net stage-3 at 0.95%, and credit cost reversals. Strategic execution during the consolidation phase is propelling PFL into the growth phase as reflected in: 1) new products steadily scaling up; 2) monthly organic disbursement run-rate of Rs10bn; 3) commanding leaderboard in preowned car financing segment and loan to professional segment; 4) entry into leaderboard in consumer and SME finance; 5) superior credit rating and repricing, which has aided funding cost benefit of 264bps since Q1FY22; 6) investment in people, technology, scale-up and rollout of new products leading to higher opexto-AUM at 5.6%. Company has created a management overlay of Rs2.24bn on its legacy book against a one-time gain on sale of Magma HDI shares. More than 50% of defocused book is in zero-dpd bucket and the company has inched up coverage to 20% (vs 9.6% QoQ) of the legacy book, thus carrying adequate provisioning buffer. This makes PFL confident of not only having no further provisioning requirement, but also provides scope for some recoveries/write-backs.

Outlook

We believe rerating will be triggered by sharp business execution, improved market positioning in focused product segments, business scale-up through diversified and granular portfolio mix, and consistent earnings delivery. Also, the proposed preferential issue in Poonawalla Housing Finance up to Rs10bn for 3% RoA profile, the stock can command a valuation of 3.5x FY24E consolidated book (against earlier expectations of 2.75x). We revise our target price to Rs335 (earlier: Rs261). Maintain BUY.

More Info

At 17:30 Poonawalla Fincorp was quoting at Rs 266.85, down Rs 1.45, or 0.54 percent.

It has touched an intraday high of Rs 272.40 and an intraday low of Rs 265.10.

It was trading with volumes of 156,471 shares, compared to its thirty day average of 519,332 shares, a decrease of -69.87 percent.

In the previous trading session, the share closed down 1.34 percent or Rs 3.65 at Rs 268.30.

The share touched its 52-week high Rs 343.75 and 52-week low Rs 141.00 on 13 April, 2022 and 25 October, 2021, respectively.

Currently, it is trading 22.37 percent below its 52-week high and 89.26 percent above its 52-week low.

Market capitalisation stands at Rs 20,417.14 crore.

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