The global brokerage Jefferies has given a ‘Buy’ rating to Poonawalla Fincorp. The brokerage house believes that the non-banking financial company (NBFC) may be entering a new growth phase after a major strategic overhaul.
The brokerage has initiated coverage on the stock with a ‘Buy’ rating and a target price of Rs 490. This implies an upside potential of nearly 23% from the current market price.
According to the Jefferies report, a combination of new leadership, product expansion, stronger underwriting standards and network growth could help the company deliver one of the fastest growth rates among large NBFCs over the next few years.
So, what is driving the optimism for Jefferies? Here is a look at the key reasons –
Transformation in the leadership structure
One of the biggest changes at Poonawalla Fincorp has been the transformation of its leadership structure.
Jefferies report added that the company is being repositioned under Chief Executive Officer Arvind Kapil, who previously headed retail and mortgage businesses at HDFC Bank.
Jefferies noted that seven out of nine CXOs now come from HDFC Bank backgrounds, signalling a significant management refresh.
The brokerage said, “Poonawalla Fincorp is set to leverage its new leadership team, product expansion, network build out & sharpened underwriting.”
According to the report, the management has also recalibrated some of its legacy businesses while focusing on building newer lending segments.
New products are expanding the loan book
Over the last year, the company has aggressively expanded its product offerings.
According to Jefferies, Poonawalla Fincorp has launched six new lending products, including prime personal loans, commercial vehicle loans, gold loans and education loans.
These newer products have already scaled up rapidly and now account for around 14% of the company’s Assets Under Management (AUM).
The brokerage expects this contribution to increase substantially.
According to the report, “New product AUM should reach 34% of AUM.”
Jefferies expects the company’s overall Assets Under Management, which stood at around Rs 60,300 crore in FY26, to grow at a compound annual growth rate (CAGR) of 33% between FY26 and FY29.
Can margins improve from here?
Another factor supporting the brokerage’s view is the expected improvement in Net Interest Margins (NIMs).
As per Jefferies report, margins had declined over the last two years because the company reduced its exposure to a high-yield legacy personal loan portfolio.
However, the loan mix is now changing again.
The brokerage stated, “It has relaunched instant personal loans with tighter calibration and added higher-yielding products such as prime personal loans and gold loans.”
As these businesses grow faster, Jefferies expects NIMs to improve by around 70 basis points over the next three years.
At the same time, operating efficiencies are expected to improve.
According to the report, cost-to-assets is projected to decline to 3.9% by FY29 from 4.4% in FY26.
Asset quality trends are improving
The brokerage also highlighted positive developments on the credit quality front.
Poonawalla Fincorp’s Gross Non-Performing Asset (GNPA) ratio improved to 1.4% in FY26 compared to 1.8% a year earlier.
According to Jefferies, tighter underwriting standards and the gradual run-down of stressed legacy portfolios have supported this improvement.
The report noted, “Early delinquency trends for new book is encouraging, with delinquencies on post-Sep’24 vintages 50% below the prior 12-month cohort.”
The brokerage also pointed out that newer products such as gold loans and education loans typically carry lower credit risks.
As a result, Jefferies expects credit costs to decline to around 2.2% over FY26-FY29 compared to 2.7% in FY26.
Why Jefferies expects profits to rise sharply
One of the strongest parts of the investment thesis revolves around earnings growth.
The company recently raised around Rs 2,500 crore of capital, which has strengthened its balance sheet and increased Tier-1 capital adequacy above 19.5%.
This provides sufficient room to support future lending growth.
“We expect Profit After Tax (PAT) to rise to Rs 2,900 crore from low FY26 base of Rs 540 crore,” added the brokerage house report.
The brokerage also expects return ratios to improve significantly over the next few years.
Furthermore, the report noted that Return on Assets (RoA) could improve to 2.3% by FY29 from 1.1% in FY26, while Return on Equity (RoE) may rise to 16% from 6%.
What investor need to watch
As per the brokerage house report, the company’s growth strategy appears to be supported by stronger leadership, expanding product lines, improving asset quality and better profitability metrics.
However, the brokerage has also highlighted key risks, including slower-than-expected execution, pressure on margins and higher credit stress.
Disclaimer: This article contains third-party equity research and investment analyst projections, including buy/sell ratings, target prices, and future earnings estimates. This material is presented exclusively for informational and educational purposes and does not constitute financial advice, an endorsement, or a personal recommendation or solicitation to buy, sell, or hold any security or financial instrument. Equity investments are subject to market risks, and past performance or institutional forecasts are not reliable indicators of future returns. Readers are strongly advised to conduct independent due diligence or consult a SEBI-registered investment advisor or certified
