So far in the calendar year 2022, the Poonawalla Fincorp stock has climbed nearly 38 per cent. Even as it trades at a premium valuation of 4 times the price-to-book value, bulls are finding enough levers for growth in the days ahead.
, which initiated coverage on the stock with a Buy rating, values the stock at 4x Sep’24e P/BV to arrive at a target price of Rs 400. This signals an upside potential of up to 32 per cent.
“We see PFL (Poonawalla Fincorp) inching closer to its steady state RoA profile of 3.5-4 per cent by FY25E as growth sustains and operating leverage kicks in at the beginning of FY24,” JM Financial said.
It expects PFL’s valuation to expand as it begins delivering on its growth target with stable asset quality. “We believe with a steady-state RoE profile of 19-22 per cent, the business will continue to command premium valuations over the medium term,” the report said, adding that strong promoter backing resulted in a sharp decline in the cost of funds of the entity, which is now able to cater to a high-quality customer base.
“The change of ownership has driven a significant reduction in the cost of borrowings (down 260 bps over 15 months), enabled the company to refocus its customer and product segment (to credit-tested customers with select offerings) and invest significantly in technology and talent,” the brokerage said.
For , which has a target price of Rs 335 on the stock, strategic execution during the consolidation phase is propelling PFL into the growth phase.
“We believe rerating will be triggered by sharp business execution, improved market positioning in focused product segments, business scale-up through diversified and granular portfolio mix, and consistent earnings delivery,” it said.
In the June quarter, the non-bank lender reported a 117 per cent jump in consolidated net profit at Rs 141 crore, owing to robust business growth and improvement in net interest margin.
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