Poonawalla Fincorp Limited — Q3 FY25 earnings call

Call held 31 Jan 2025

Management summary

Poonawalla Fincorp delivered strong AUM growth of 41% YoY, driven by a pivot toward secured lending and core retail segments. While the company is aggressively cleaning up its legacy Short-Term Personal Loan (STPL) book through high write-offs, management expressed extreme confidence in the 'PFL 2.0' strategy. The focus is now shifting toward a multi-product franchise with a target of 3.0%-3.5% ROA by FY27.

Highlights

  • Assets Under Management (AUM) reached ₹30,984 crores, growing 41% YoY and 9% QoQ.

  • Total disbursements for the quarter stood at ₹7,149 crores, up 13% QoQ; core retail disbursements doubled YoY to ₹4,705 crores.

  • Net Interest Income (including fees and other income) rose to ₹672 crores, a 22% YoY increase.

  • Asset quality improved with Gross NPA reducing by 25 bps QoQ to 1.85% and Net NPA at 0.81%.

  • Significant write-offs of ₹676 crores were executed during the quarter, primarily targeting the legacy STPL book.

  • Pre-provisioning Operating Profit (PPOP) stood at ₹373 crores, compared to ₹279 crores in the previous quarter.

  • Management maintained a strong capital position with a CRAR of 25.89% and Tier 1 capital at 24.46%.

  • Announced a massive expansion plan of 400 new branches and 6 new product launches starting Q1 FY26.

Concerns

  • Legacy STPL Portfolio Stress

Key financials

  1. AUM ₹30,984 Cr +41%YoY
  2. Net Interest Income ₹672 Cr +22%YoY
  3. Gross NPA 1.9% -11.9%QoQ
  4. Cost of Borrowing 8.1% -0.05%QoQ
  5. PPOP ₹373 Cr +6.5%YoY
  6. CRAR 25.9%

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 Finance
    36% AUM Share
  • Personal and Consumer Finance
    24% AUM Share
  • Loan Against Property (LAP)
    22% AUM Share86% AUM Growth
  • Pre-owned Cars
    14% AUM Share

Guidance & targets

Volume

  • AUM Growth Volume · FY25 · High confidence 30-35%

    From 30-35% today

    Our guidance which we had given for the AUM growth 2 quarters ago was 30%-35% for the financial year and 30%-40% thereafter. We remain firmly on track to achieve this.

    — Arvind Kapil, MD & CEO

Margin

  • Return on Assets (ROA) Margin · FY27 · Medium confidence 3.0%-3.5%
    We expect that the ROAs will be probably in the range of around 3%-3.5% by the time the third-year ends.

    — Arvind Kapil, MD & CEO

Capacity

  • Branch Expansion Capacity · starting Q1 FY26 · High confidence 400
    Phase-wise launch of 400 new branches is planned beginning Q1 FY25-26.

    — Arvind Kapil, MD & CEO

Profitability

  • New Business ROA Profitability · Steady State · Medium confidence 3.0%-4.5%
    All these 6 businesses that I have planned and the one I've announced today, all in my plan is an ROA of 3%-4.5%.

    — Arvind Kapil, MD & CEO

Risks & concerns

  • Legacy STPL Portfolio Stress

    high

    The old Short-Term Personal Loan book continues to drive high write-offs (₹676 cr this quarter).

    Both acknowledged

  • Gestation Costs of Expansion

    medium

    Significant investments in 400 branches and 6 new product lines will have a 4-quarter gestation period before contributing to profits.

    Management acknowledged

  • Execution Risk in Multi-Product Launch

    medium

    Simultaneously launching 6-7 new products (Gold, CV, Education, etc.) across 400 branches requires high operational precision.

    Analyst downplayed

Areas of evasion (1)

  • Specific credit cost guidance for the inherited AUM beyond 'trending down'.

Q&A highlights

2 direct
Write-offs and Provisions for the Quarter Direct
The total write-off is ₹676 crores for the quarter, and this is spread across various products... out of the total ₹348 crores charge, about ₹200 crores is towards STPL.

Clarifies the extent of the cleanup in the legacy book, confirming that the majority of the pain is concentrated in the old STPL portfolio.

Asked by Umang Shah, Kotak Mutual Fund

Future Provisions on the Inherited Book Direct
The write-off on old book was to the tune of ₹520 crores... And with these, we have sufficient provisions.

Management signals that the bulk of the 'legacy' provisioning hit has been taken, providing visibility on normalized credit costs going forward.

Asked by Pranay Mehta, Investec

Credit Cost on Inherited AUM Partial
The exact number is difficult to say in this ₹6,000 crores [problem book]. But remember one thing, we've taken a one-time provision. There's write-offs done. We seem to be fairly adequately provided on it.

Highlights the analyst's concern regarding the quality of the inherited ₹27,000 cr book versus the new management's 'calibrated' book.

Asked by Abhijit Tibrewal, Motilal Oswal

2 min read 5 chapters

Detailed narrative

Aggressive Cleanup of Legacy STPL Book

Poonawalla Fincorp executed a significant cleanup of its legacy Short-Term Personal Loan (STPL) portfolio this quarter, reporting total write-offs of ₹676 crores. Of the ₹348 crore credit charge taken in Q3, approximately ₹200 crores was specifically attributed to the STPL book. Management indicated that the bounce rate resolution for this portfolio improved by 380 basis points from Q2 to Q3, suggesting that while the write-offs are high, the underlying collection efficiency is recovering.

Strategic Pivot to Secured Lending

The company is successfully shifting its mix toward secured lending, with the secured-to-unsecured on-book ratio improving to 54:46. Loan Against Property (LAP) emerged as a major growth driver, with the book reaching ₹6,795 crores, up 86% YoY and 27% QoQ. This growth is being achieved with a conservative Loan-to-Value (LTV) ratio of 51%, reflecting a more risk-calibrated approach under the new management team.

Massive Distribution and Product Expansion

Management unveiled an ambitious expansion plan to launch 400 new branches starting in Q1 FY26, which will support the rollout of six new product classes: Gold loans, Consumer durables, Used Commercial Vehicles, Shopkeeper loans, Education loans, and Equipment leasing. 263 branch locations have already been secured across four states. This expansion is expected to have a one-year gestation period, which management cites as the reason for currently elevated operating costs.

AI-First Strategy and Operational Efficiency

Poonawalla is positioning itself as an 'AI-first' NBFC, collaborating with IIT Mumbai to develop advanced risk analytics and a 'Humanoid' AI credit assistant. Currently, 90% of hiring agents use AI-based screening, which has dramatically reduced the time-to-offer. The company plans to launch an industry-first 24/7 Digital Prime Personal Loan in Q4 FY25, targeting high-income salaried professionals with a completely zero-touch process.

Long-term Profitability and ROA Targets

Despite the near-term impact of write-offs and expansion costs, management provided a clear roadmap for profitability, targeting a robust ROA of 3.0%-3.5% by FY27. The new business lines are being modeled to deliver steady-state ROAs between 3.0% and 4.5%. CEO Arvind Kapil emphasized that the current phase is about building 'institutional scale' and that the company is on track to exceed its AUM growth guidance of 30-40% in the coming years.

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