Broker’s call: Poonawalla Fin (Buy)

Poonawalla Fincorp (PFL) has successfully transitioned from a focused investment strategy to a diversified retail lender, with its newer businesses achieving significant scale. This shift is driven by a broader distribution network, enhanced digital capabilities, and disciplined execution across various product lines, customer segments, and collateral types.

As the company's portfolio becomes more diversified, growth is projected to become more resilient, and earnings quality is expected to improve, with operating leverage beginning to offset the elevated investment spend of the past two years. Poonawalla Fincorp's profitability outlook is strengthening as higher-yielding businesses scale up, portfolio yields improve, and operating leverage begins to offset past elevated investment spend.

The company is transitioning from a transformation story to an earnings compounding story, with multiple growth engines, improving operating efficiency, AI-led productivity gains, and strengthening asset quality driving superior earnings growth over the next few years. Using a model of approximately 43% AUM CAGR and around 117% PAT CAGR from FY26 to FY28E, PFL's return on assets and return on equity are expected to improve to around 2.4% and 17% by FY28E, respectively.

At a price-to-book value ratio of 2.5x FY28E, Poonawalla Fincorp's current valuation remains attractive relative to its medium-term earnings potential. The brokerage firm reiterates its Buy rating for PFL, with a target price of ₹570, based on a March 28th end-of-period book value per share, using a 3.0x multiple.