India’s financial services sector is experiencing rapid growth, driven by increasing consumer credit demand and digital adoption. Despite this momentum, formal lending penetration remains low at 55% of GDP, significantly behind regional counterparts. The vast untapped potential is evident, with a large portion of consumers still underserved.
In this dynamic environment, Poonawalla Fincorp stands out as an attractive stock, leveraging its diversified product portfolio, tech-driven approach, and strong parentage to capitalize on the burgeoning consumer finance market.
Industry Overview
NBFCs play a critical role in supporting the expansion of the Indian economy. With the advent of fintech, the sector has seen promising growth in the last few years. Going forward, the sector is expected to grow at a pace of 18.5% CAGR up to 2026. This growth will be driven by increased digital adoption, financial inclusion, and customer-centric innovations.
Among various segments, the retail credit segment will contribute the most, accounting for 55% of the total credit disbursed by the NBFC sector. This surge in retail lending highlights the increasing demand for personal loans, housing finance, and vehicle financing across India.
Note: If you want to learn Candlesticks and Chart Trading from Scratch, here’s the best book available on Amazon! Get the book now!
Company Overview Of Poonawalla Fincorp
Poonawalla Fincorp(erstwhile Magma Fincorp Limited) is a non-deposit-taking NBFC registered with RBI. Among all the NBFCs currently present in the market one such NBFC which stands out is Poonawalla Fincorp. It is engaged in providing consumer and MSME financing, as well as General Insurance Services. Founded in 1988 as Magma Leasing Ltd., it initially focused on equipment leasing. Over the years, it expanded into various financial services, including vehicle finance, mortgage finance, and SME lending.
Stake buy and Rebranding
In 2021, a significant change occurred when the Poonawalla Group, led by Adar Poonawalla (CEO of Serum Institute of India), acquired a controlling stake in Magma Fincorp. This led to a rebranding as Poonawalla Fincorp. The acquisition brought substantial capital infusion and a strategic shift.
The company aims to leverage technology and the Poonawalla brand to expand its consumer and small business financing operations. Since the rebranding, Poonawalla Fincorp has focused on digital transformation, improving asset quality, and expanding its product portfolio to cater to a wider range of customers.
Joint Venture and Partnerships Forged
In 2008, it formed a joint venture with HDI-Gerling International Holding AG to enter the general insurance sector, creating Magma HDI General Insurance Company. The company partnered with Celica Group in 2012 to form Magma ITL, focusing on construction equipment financing.
In 2018, Magma Fincorp entered into a joint venture with Sadhan Enterprise to strengthen its affordable housing finance business. Finally, in 2022, Poonawalla Fincorp sold its subsidiary Poonawalla Housing Finance Perseus SG in a deal worth ₹3,900 Cr.
Financial Highlights Of Poonawalla Fincorp
The financial data for Poonawalla Fincorp shows significant improvement from 2020 to 2024. Net Interest Income shot up by 60% from ₹1215 Cr. to ₹1949 Cr. Net profit grew substantially, turning around from a loss of ₹559 Cr. in 2021 to a profit of ₹1683 Cr. in 2024. Operating profit margin and return on equity both increased dramatically, reaching 66% and 14% respectively in 2024. Earnings per share also recovered strongly, rising from -₹20.73 in 2021 to ₹21.73 in 2024.
Key Performance Indicators
Disbursement increased from 2,901 crore in Q1FY’23 to 9,698 crore in Q4FY’24. Assets Under Management (AUM) grew from 12,606 crore to 25,003 crore in the same period. Profit After Tax (excluding exceptional items) rose from 100 crore to 332 crore. Cost of Borrowing fluctuated slightly, ending at 8.17% in Q4FY’24. GS3/GNPA decreased from 2.68% to 1.16%, while NS3/NNPA reduced from 1.11% to 0.59%. These figures indicate growth in business volume and profitability, alongside improvements in asset quality.
Asset Quality & Credit Rating
Poonawalla Fincorp has demonstrated significant improvement in asset quality over the past year. As of March 31, 2024, the company reported a Gross NPA of 1.16%, down from 1.44% a year earlier. Net NPA also improved to 0.59% from 0.78% in March 2023. The Provision Coverage Ratio increased to 49.39% from 46.19% over the same period.
In absolute terms, Gross NPAs stood at ₹268 crore and Net NPAs at ₹136 crore as of March 2024, showing further improvement from December 2023 figures of ₹275 crore and ₹145 crore respectively. The company attributes its robust asset quality to targeting prime and super-prime customers with credit scores above 700, implementing conservative underwriting standards, and focusing on metropolitan and urban areas.
Additionally, Poonawalla Fincorp’s credit rating has improved significantly, with both CRISIL and CARE Ratings assigning a long-term rating of AAA/Stable, further affirming the company’s strong financial position and credibility in the market.
Stake Sale by CEO
Recently the CEO and MD Abhay Sureshkumar Bhutada of the company sold close to 7,600,000 shares at a price of ₹ 437. This led to the stock falling by 8% on 10 June 2024. Interestingly there was no message shared with SEBI and the entire stake was sold in the open market.
Before this even in 2021 too Abhay Sureshkumar Bhutada, the Managing Director of Poonawalla Fincorp that time known as Magma Fincorp, made headlines in September 2021 when he sold a significant portion of his stake in the company. This sale occurred shortly after the company’s shares hit a record high.
The timing of the sale raised concerns and led to an investigation by the Securities and Exchange Board of India (SEBI) for alleged insider trading. As a result, SEBI barred Bhutada and seven other entities from the securities market. Although the ban was revoked in 2022.
ESOP by Company
Poonawalla Fincorp Limited has granted stock options under ESOP-2024 Scheme-II, as decided by the Nomination and Remuneration Committee on September 11, 2024. The company allocated 3,00,000 options in Tranche-13 at Rs. 382.63 to eligible employees. These options will vest according to the schedule specified in the ESOP-2024 Scheme-II. This move aims to align employee interests with company growth and provide potential financial benefits to staff members.
Also read…
Future Outlook Of Poonawalla Fincorp
The company’s future outlook appears promising, with a clear strategic roadmap in place. Their “Way Forward” plan focuses on solidifying, expanding, and scaling the business over the next 5-6 years. This phased approach aims to shape a productive, predictable, and sustainable enterprise.
In the near term, the organization will concentrate on strengthening its foundation. Key priorities include consolidating the management team, incubating new products, and implementing AI-driven solutions across functions. This groundwork will pave the way for future growth.
The company also plans to expand its product lines and enhance its “phygital” model, bridging physical and digital customer touchpoints. Looking further ahead, the firm aims to sharpen its focus on customer acquisition and cross-selling. It will target lower acquisition costs for customer cohorts and seek to gain market share year-over-year.
The planned launch of new product offerings in FY25, including consumer durables, personal loans, shopkeeper loans, and used commercial vehicle financing, demonstrates a commitment to diversifying revenue streams and meeting evolving customer needs. This multifaceted strategy positions the company to potentially achieve its ambitious goal of 5-6x growth in assets under management over the next 5-6 years.
Competitors
Poonawalla Fincorp faces intense competition in the NBFC sector, where several companies are aggressively expanding in the same space. This has led to a crowded market and heightened competitive pressure. Bajaj Finance is one of its major rivals, with a diversified lending portfolio across retail, SME, and commercial customers. Bajaj’s strong presence in both urban and rural areas, coupled with its public and corporate deposit offerings, makes it a formidable competitor.
Shriram Finance also presents a significant challenge. As part of the SHRIRAM Group, the company specializes in commercial vehicle financing, focusing heavily on trucks. With a vast network of 1,758 branches and 831 rural centers, Shriram’s widespread reach and partnerships with private financiers give it a competitive edge.
Mahindra & Mahindra Financial Services Limited, another key competitor, is a Mahindra Group subsidiary specializing in financing vehicles, tractors, construction equipment, and SMEs. This diversity and strong backing from a major conglomerate put additional pressure on Poonawalla Fincorp to maintain its market share and grow.
Key Metrics Of Poonawalla Fincorp
Price Target
KR Choksey: has given a BUY rating on the stock with ₹455 as a target as the company reported a decent set of numbers, with continued robust business momentum and improvement in asset quality. Net Interest Income (NII) for Q4FY24 increased by 48.1% YoY (+14.6% QoQ) to INR 5,625 Mn.
Motilal Oswal: has also given a BUY rating on the stock with an upside potential of 15% to the price of 465. The brokerage house believes that the profits of the stock would be growing further because of the expansion of the sector.
Axis Securities: has a BUY call on Poonawalla Fincorp with a target price of Rs 541. As the profits of the company soared by 145% YoY. The brokerage also expects the company to gain market share going forward.
Conclusion
In the coming days, the stock’s movement will be worth watching after its recent drop from ₹500+ to ₹410. As it navigates this correction, the company must focus on leveraging the credit gap in the Indian economy. The Non-Banking Financial Company (NBFC) sector and microfinance play a crucial role in driving financial inclusion.
The company’s ability to capitalize on these opportunities could strengthen its market position. However, with new entrants in the segment, maintaining its leadership will be a challenge. Its response to competition and market dynamics will determine its future trajectory. Question for the readers: Will it be able to broaden its horizons and capitalize on the credit gap that exists in the Indian economy? Will it be able to maintain its top position against the new entrants in the segment? Comment your thoughts below.
Written By Dipangshu Kundu
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.
Start Your Stock Market Journey Today!
Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!
