Poonawalla Fincorp Limited — Q1 FY26 earnings call

Call held 25 Jul 2025

Management summary

Poonawalla Fincorp delivered a quarter of robust AUM growth and strategic portfolio recalibration, shifting aggressively toward a 'risk-first' secured lending model. While Net Interest Margins (NIM) saw temporary moderation due to the phase-out of the legacy STPL book, management expects a return to 9% NIMs within four quarters. The company is heavily investing in AI and digital infrastructure while maintaining stable asset quality and securing a major capital infusion from its promoter.

Highlights

  • Assets Under Management (AUM) grew 53% YoY and 15.8% QoQ to ₹41,273 crores.

  • Total disbursements for the quarter stood at ₹10,651 crores, up 13.6% QoQ.

  • Net Interest Income (NII) reached ₹768 crores, a growth of ~7% QoQ.

  • Overall credit cost improved by 53 bps sequentially to 2.61%; core product credit cost (ex-STPL) is at 1.43%.

  • Gross NPA remained stable at 1.84%, while Net NPA stood at 0.85%.

  • Promoter to infuse ₹1,500 crores of equity capital at ₹452.5 per share to strengthen capital base.

  • Secured loan mix increased significantly to 57% of AUM compared to 49% in Q1FY25.

  • Profit After Tax (PAT) reported at ₹63 crores, impacted by significant investments in new businesses and technology.

Concerns

  • Net Interest Margin (NIM) Compression

Key financials

  1. AUM ₹41,273 Cr +53%YoY
  2. NII ₹768 Cr +7%QoQ
  3. PAT ₹63 Cr
  4. GNPA 1.8% 0%QoQ
  5. Credit Cost 2.6% -16.8%QoQ
  6. Cost of Borrowings 8% -0.37%QoQ

What they filed

Q1 FY27: revenue up 77.3%, net profit up 388.9% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue989 1,057 1,166 1,314 1,542 +56%1,818 +72%2,115 +81%2,330 +77%
Net profit-471 19 62 63 74 +116%150 +689%255 +311%308 +389%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • MSME
    36% Share of AUM63% Secured Mix
  • STPL (Legacy)
    4% Share of AUM₹64 Cr Credit Cost
  • LAP
    128% AUM Growth

Guidance & targets

Volume

  • AUM Growth Volume · FY26 · High confidence 35-40%
    We expect healthy AUM growth in the financial year, which will likely be notches better, I believe, than our guidance for this financial year of around 35%-40%.

    — Arvind Kapil, MD & CEO

Margin

  • NIM Margin · next 3-4 quarters · High confidence 9%
    we expect NIMs to be back at around 9% within the next 3-4 quarters.

    — Arvind Kapil, MD & CEO

Profitability

  • ROA Profitability · June-2028 · Medium confidence 3%-3.5%
    Our guidance is June-2028, we have set 3%-3.5%.

    — Arvind Kapil, MD & CEO

  • Credit Cost Profitability · FY26 · Medium confidence 1.5% to 2%
    we maintain guidance of 1.5% to 2%, but internally we are committed and confident that our disciplined approach of credit calibration plus collections will translate into improved credit cost metrics

    — Shriram Iyer, Chief Credit and Analytics Officer

Debt

  • NCD Share of Borrowing Debt · next couple of years · High confidence 35%
    We aim to achieve share of NCD of around 35% of the total borrowing over the next couple of years.

    — Arvind Kapil, MD & CEO

Capacity

  • Gold Loan Branches Capacity · March-2026 · High confidence 400
    We are on track to meet our objectives of launching 400 branches by March-2026.

    — Arvind Kapil, MD & CEO

Risks & concerns

  • Net Interest Margin (NIM) Compression

    high

    NIMs moderated due to the transition from high-yield legacy STPL to lower-yield secured assets and new calibrated products.

    Both acknowledged

  • Legacy STPL Portfolio Stress

    medium

    The remaining 4% of AUM in the old STPL book has high credit costs (₹64 crores this quarter) and requires continued provisioning.

    Analyst acknowledged

  • Rising OPEX

    medium

    OPEX is expected to rise as the company adds 80 branches and 1,000+ employees, though AI efficiencies are expected to offset this by Q4.

    Management

Areas of evasion (2)

  • Specific current NIM figure was not explicitly stated, only the target and the 'moderation' trend.
  • Deflected a comment about MSME 'storms' by stating it was the analyst's statement, not theirs.

Q&A highlights

2 direct
NIM Contraction and Recovery Timeline Direct
I said four quarters, which is 12 months, you will hit an approximate figure of nine. So, that's exactly what I am saying. I am not saying it's going to compress till then.

Investors were concerned about the duration of margin compression; management provided a firm timeline for recovery.

Asked by Abhijit Tibrewal

Asset Quality of Residual STPL Book Partial
To be honest, better to be conservative on that and we like to believe the same, but it's better to be watchful till it's gone, alright?

Highlights that the remaining 20% of the legacy STPL book (approx. ₹500-600cr) carries high risk and is being aggressively provisioned/written off.

Asked by Mohit Jain

MSME Book Risk and Leverage Direct
The biggest challenge today in the MSME book was the leverage part of it and that's where we look at the number of enquiries... we don't even look at those kinds of transactions.

Management clarified their strict underwriting criteria for MSMEs, focusing on low-leverage customers to avoid industry-wide stress.

Asked by Kaitav Shah

2 min read 5 chapters

Detailed narrative

Strategic Portfolio Recalibration Toward Secured Assets

Poonawalla Fincorp is undergoing a deliberate shift in its AUM mix, with secured loans now comprising 57% of the portfolio compared to 49% a year ago. This 'risk-first' approach has led to a significant reduction in the legacy Short-Term Personal Loan (STPL) book, which now accounts for only 4% of AUM, down from 8% in March 2025. While this transition has caused temporary NIM compression, management believes it builds a more resilient, bank-like credit profile with core product credit costs at a low 1.43%.

Aggressive AI and Digital Transformation Roadmap

The company has launched 35 AI-related projects, with 8 already completed, focusing on areas like 'Agentic AI' for sales, automated underwriting, and fraud detection. A key highlight is the 'human-less' field agent allocation system which reduced allocation time from days to hours. Management expects these technology investments to drive significant operational efficiencies and lower customer acquisition costs starting from Q4 FY26.

Liability Management and Capital Strengthening

The share of NCDs in the borrowing mix has surged from 7% in March 2025 to 24% in June 2025, with a long-term target of 35%. This shift, along with a ₹1,500 crore preferential equity infusion from the promoter at ₹452.5 per share, is designed to lower the cost of funds and provide a robust capital cushion for 35-40% annual AUM growth. The cost of borrowings has already seen a marginal decline to 8.04%.

New Business Verticals Gaining Momentum

New business lines including Gold Loans, Commercial Vehicle (CV) loans, and Education loans are scaling rapidly. The Gold Loan business has 80 branches operational with a target of 400 by March 2026, while the CV business is already disbursing ₹92 crores monthly. Education loans saw 4,000+ files logged within the first 90 days of launch, indicating strong market reception for the company's digital-first approach in these segments.

NIM Recovery and Long-term ROA Guidance

Despite current margin pressure, management provided high-conviction guidance that NIMs will return to the 9% level within 3-4 quarters as new high-yield digital products scale and legacy book drag diminishes. They maintained a long-term ROA target of 3%-3.5% by June 2028 and an aspirational ROE of 20% by the third or fourth year of their strategic plan, supported by a target debt-to-equity ratio of 4.75x to 5x.

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