Poonawalla Fincorp earnings beat as new products and gold loans fuel AUM growth

Investment View: Structural Re-rating Underway

Deven Choksey Research’s July 20, 2026 result update maintains a BUY recommendation on Poonawalla Fincorp Ltd. The broker argues that the company is undergoing a structural re-rating rather than merely reporting a one-quarter earnings beat.

Return on equity is expected to rise from mid-single digits in FY26 to high teens by FY28E, supported by rapid AUM expansion from a low base and operating leverage. Cost-to-income improved from 57.7 per cent to 44.6 per cent over the past five quarters, and the broker expects further efficiency gains as earlier investments mature.

The broker’s target price is Rs 600, compared with a CMP of Rs 477. The target implies a valuation based on 3.2 times FY28E adjusted book value per share.

Q1 FY27 Financial Performance

Poonawalla Fincorp reported a strong Q1 FY27, with PAT of Rs 307.7 crore, up 20.8 per cent quarter-on-quarter and 392.3 per cent year-on-year. PAT was 26.3 per cent above Deven Choksey Research’s estimate, driven by 14.0 per cent quarter-on-quarter growth in net interest income and 12.9 per cent growth in pre-provision operating profit.

AUM Growth and Product Diversification

AUM rose 11.1 per cent quarter-on-quarter and 62.5 per cent year-on-year to Rs 67,054 crore in Q1 FY27, following 9.7 per cent sequential growth in Q4 FY26. The broker identifies expansion into Prime PL, Gold Loan, Education Loan, Consumer Durable, Commercial Vehicle and Shopkeeper Loan as the central structural growth driver.

These six products accounted for 16 per cent of AUM and 26 per cent of quarterly disbursements, reducing dependence on the legacy unsecured and MSME portfolio. Gold Loan was operational across 460 branches. Management indicated that only 60 of around 400 planned FY27 branch openings had been completed in Q1 FY27, with branch additions and disbursement momentum expected to accelerate during the balance of FY27. Shopkeeper Loan is the only new-product segment for which management does not expect growth to accelerate.

Asset Quality and Credit Costs

Asset quality continued to improve. GNPA declined sequentially to 1.37 per cent, while NNPA was broadly stable at 0.70 per cent. Early-vintage delinquency in the latest sourcing cohorts declined to 1.05 per cent and 0.64 per cent from 6.74 per cent eighteen months earlier.

Management described the reduction in credit cost to 2.40 per cent from 2.51 per cent in Q4 FY26 as structural and expects further improvement. Quarterly write-offs are expected at Rs 275 crore to Rs 280 crore. The secured portfolio represented 53 per cent of on-book AUM, and management continues to target an eventual 50:50 secured-to-unsecured mix.

Growth Guidance, Capital and Margins

Management reiterated AUM CAGR guidance of 35 per cent to 40 per cent over the next couple of years. The post-QIP capital base is said to support growth for four to five quarters. Of the approved Rs 5,500 crore capital raise, Rs 2,500 crore has been used and Rs 3,000 crore remains pre-approved, with no timeline for further issuance.

Reported NIM improved to 9.10 per cent from 9.05 per cent in Q4 FY26 as disbursement yields increased by around 50 basis points quarter-on-quarter. Cost of borrowing increased 9 basis points to 7.72 per cent, but management expects higher lending yields to protect NIM.

Management cautioned that opex-to-AUM could increase by 15 to 25 basis points quarter-on-quarter as branches open, although it sees the medium-term efficiency trend remaining intact.

AI-led Operating and Collections Efficiency

Management highlighted AI as an operating and collections lever. AI projects increased over 30 per cent quarter-on-quarter to 101 across 21 departments, including 50 deployed projects and about 130 AI agents in production.

Management attributed part of the reduction in opex-to-AUM, from 4.76 per cent in Q4 FY25 to 4.06 per cent in Q1 FY27, to AI adoption. It cited 15 per cent cost savings in pre-bill collections, a 27 per cent improvement in post-bill collections and a 26 per cent reduction in collection opex. The PayEasy bot recovered 42 per cent of failed payments without manual intervention.

Earnings Forecasts

Deven Choksey Research expects strong growth in net interest income, pre-provision operating profit and PAT through FY28E.

Valuation and Target Price

The Rs 600 target price is based on 3.2 times FY28E adjusted book value per share of Rs 187.4. The target multiple is modestly below the current trailing price-to-book multiple of 3.32 times because the new-product portfolio remains relatively unseasoned.

The broker considers the valuation justified by projected FY28E ROE of 16.8 per cent and 30 per cent AUM growth.

Key Risks

• Additional capital may be required if AUM grows faster than expected.
• Credit deterioration could emerge in the new-product segments.
• Sustained increases in funding costs could compress NIM.
• Delays in the Gold Loan branch rollout could weaken disbursement and AUM momentum.