Jefferies assigns Buy to Poonawalla Fincorp, says NBFC set for solid growth

Global brokerage Jefferies has initiated coverage on Poonawalla Fincorp (PFL) with a 'Buy' rating, citing the non-banking financial company’s (NBFC's) ability to leverage its new leadership team, product expansion, network build-out, and sharpened underwriting practices. 

Bhaskar Basu, Kamal Mulchandani, and Prakhar Sharma, equity analysts at Jefferies, expect PFL to deliver a 33 per cent AUM CAGR — the fastest among major NBFCs — aided by a better loan mix, improved net interest margins (NIMs), and lower credit costs driven by reduced slippages and portfolio diversification. 

The analysts further expect a sharp growth in earnings, with return on equity (RoE) expanding to 16 per cent by FY29E from 6 per cent in FY26, supporting the company's premium valuations. 

 

Amid this, the NBFC's shares were trading at ₹396.90 apiece, down 0.60 per cent from the previous close. At the current market price, Jefferies sees an upside of 16.59 per cent and has set a target price of ₹490 per share. 

According to Jefferies, PFL trades at 2.4x FY27E book value (25x FY27E PE), below its post-Poonawalla acquisition average of 3.1x book value, but at the upper end of diversified AAA-rated NBFC peers (excluding BAF) that offer lower growth but better returns. 

"PFL’s stronger growth and improving returns should support premium valuations, with further re-rating scope if execution is strong," wrote the analysts in a research note.

Strategic reset, product expansion to drive growth

According to Jefferies, According to Jefferies, the NBFC is being repositioned under chief executive officer Arvind Kapil, former head of retail and mortgage businesses at HDFC Bank. 

The company has revamped its leadership team, with seven of its nine CXOs coming from HDFC Bank, recalibrated legacy products, and launched six new offerings, including prime personal loans, commercial vehicle loans, gold loans, and education loans. These products have already scaled to 14 per cent of AUM within a year.  READ | Citi bets on electric equipment makers; picks Hitachi, GE Vernova, CG Power 

"Backed by investments in distribution, collections and tech/AI, AAA rating and Adar Poonawalla Group parentage, new product AUM should reach 34 per cent of AUM and AUM should grow at 33 per cent CAGR over FY26-29E," said the analysts.

NIMs to expand on loan mix changes

According to Jefferies, PFL's NIMs declined by 250 basis points over the last two years as it unwound its legacy high-yield personal loan book. 

The company has since relaunched instant personal loans with tighter calibration and added higher-yielding products such as prime personal loans and gold loans. Faster growth in these segments, coupled with a balanced unsecured loan mix (50 per cent versus 46 per cent in FY26), should help lift NIMs by 70 basis points over FY26-29E, said the analysts. 

Cost-to-AUM is expected to decline to 3.9 per cent by FY29E from 4.4 per cent in FY26 on account of operating leverage.

Credit cost to ease, driving profitability

The analysts highlighted that PFL's gross non-performing assets (GNPA) ratio declined to 1.4 per cent from 1.8 per cent in FY25, aided by the run-down of the stressed legacy personal loan book and tighter underwriting standards. 

Early delinquency trends in the new book remain encouraging, with delinquencies on post-September 2024 vintages running 50 per cent below the prior 12-month cohort. Newer products such as gold and education loans also carry structurally lower credit costs. 

Jefferies expects credit costs to decline to 2.2 per cent over FY26-29E from 2.7 per cent in FY26. 

A Rs 25-billion capital raise in April 2026 has lifted PFL's Tier-I capital ratio to over 19.5 per cent, providing sufficient headroom to fund growth in the near term. 

"We expect PAT to rise to ₹2900 crore from low FY26 base of ₹540 crore with RoA/RoE improving to 2.3 per cent/16 per cent in FY29 from 1.1 per cent/6 per cent in FY26. Our estimates are below management's RoA target of 3.0–3.5 per cent by Jun-28, leaving upside if execution surprises positively," said Jefferies.

Key risks

The brokerage cautioned that weaker execution, lower-than-expected NIMs, and higher asset-quality stress could emerge as key risks for the company.  ======================================= 

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