Jefferies Launches Coverage on Poonawalla Fincorp with a ‘Buy’ Rating, Citing Strong Growth Potential and Market Opportunities.
International brokerage firm Jefferies has initiated coverage on Poonawalla Fincorp with a bullish Buy rating and a target price of Rs 490, suggesting a potential upside of 23% from current trading levels. Their assessment underscores several positive growth drivers, particularly the company’s robust restructuring under its new leadership, which brings a wealth of experience chiefly from HDFC Bank. This leadership change, marked by the appointment of former retail and mortgage banking head Arvind Kapil, is poised to facilitate an aggressive growth trajectory supported by an expanded product portfolio and enhanced distribution channels.
Jefferies anticipates that Poonawalla Fincorp will achieve an exceptional 33% compound annual growth rate (CAGR) in assets under management (AUM) over the FY26-29 period, a figure that positions it as the industry’s fastest-growing non-banking financial company (NBFC). The predicted growth is backed by enhancements in loan composition, improved net interest margins (NIMs), and decreased credit costs attributable to a declining rate of slippages and a stronger overall asset quality. The firm expects the return on assets (RoA) and return on equity (RoE) metrics to significantly improve, rising to 2.3% and 16%, respectively, by FY29 from 1.1% and 6% in FY26, reinforcing the rationale for a premium valuation.
Transitioning to higher-yielding products, Poonawalla Fincorp is forecasted to experience an increase in NIMs, projected to rise 70 basis points over four years, counteracting recent contractions triggered by a downsized legacy personal loan portfolio. Additionally, the company’s focused initiatives on acquiring lower-risk products, such as gold and education loans, are expected to further bolster asset quality and drive down credit costs, which are projected to stabilize at 2.2% from 2.7%. This strategic shift has already reflected in declining gross non-performing assets (NPAs), achieving an impressive reduction to 1.4% from 1.8% in the preceding fiscal year.
As of the latest trading session, Poonawalla Fincorp shares are witnessing a decline, down 1.5% to Rs 394, with an overall retreat of 18% in 2026. Nevertheless, Jefferies maintains that despite the current market pressures and valuations trading at 2.4x FY27 estimated book value and 25x FY27 earnings, the anticipated growth and improving profitability could support a re-rating of the stock if execution remains on point. Nevertheless, investors should remain vigilant regarding potential risks, including execution difficulties, margin compression, and heightened credit stress, which could impact the company’s future performance.
Source: The Economic Times
(Expert Note: This report was prepared by the Wealthova team.)