Poonawalla Fincorp - Business transformation on cards; a turnaround play - ICICI Securities

Poonawalla Fincorp (PFL), in its first quarter of transitioning to new promoter and management change, reported 1.8% RoA drawing support from normalised credit cost and reduction in borrowing cost. Accelerated write-offs and contingency buffer created in Q4FY21 helped contain credit cost at 1.4%. ECL provisioning at 7% of AUM seems adequate for existing stress pool (5.4% stage-3 + 5.9% restructuring). Company's Vision 2025 is to be a diversified tech-enabled NBFC with focus on risk-calibrated growth in consumer and business financing.

Business transformation is clearly underway with: 1) leadership team being strengthened; 2) product suite being realigned for better risk-adjusted returns; 3) credit policies being revised; and 4) risk management, data analytics and digital capabilities being scaled up. Incremental triggers will be in improved credit rating outlook due to well-capitalised balance sheet and strong parentage. High probability of enhanced operating metrics and return profile in the medium term can help the stock command 2.75x book value. We revise our 2-year target price to Rs265 (previously: Rs173). Maintain BUY.

Vision 2025 of being a diversified tech-enabled NBFC: Company has unveiled its vision to be a diversified tech-enabled NBFC focused on risk-calibrated growth, with customer-centric approach, providing a growth-oriented environment for its people and creating value for shareholders. By 2025 it endeavours to: 1) be amongst top-3 NBFCs for consumer and small business finance; 2) achieve risk-calibrated accelerated growth of ~3x current AUM; 3) command the lowest cost of funds with ~250bps reduction in the borrowing cost; 4) have the best-in-class asset quality with Net NPAs at <1%; and 5) accelerate the growth trajectory of Poonawalla Housing Finance (PHFL) followed by value unlocking through IPO.

Shares of Poonawalla Fincorp Limited was last trading in BSE at Rs. 192.75 as compared to the previous close of Rs. 183.6. The total number of shares traded during the day was 164094 in over 1045 trades.

The stock hit an intraday high of Rs. 192.75 and intraday low of 185.1. The net turnover during the day was Rs. 31393669.

Source : Equity Bulls

Keywords