Synopsis : Jefferies has initiated coverage on Poonawalla Fincorp with a ‘Buy’ rating and a target price of ₹490, citing strong growth prospects driven by leadership changes, product diversification, improving margins, and better asset quality. The brokerage believes the NBFC could emerge as one of the fastest-growing players in the sector over the next few years.
India’s non-banking financial sector could be witnessing the rise of a new growth story. Global brokerage Jefferies has initiated coverage on Poonawalla Fincorp with a ‘Buy’ rating and a target price of ₹490, implying an upside potential of nearly 23% from current levels.
The brokerage believes a combination of leadership transformation, rapid product expansion, improving profitability, and strengthening asset quality could position the company among the fastest-growing large NBFCs in India.
- Leadership Revamp Signals a New Direction
A key pillar of Jefferies' bullish thesis is the company's management transformation under Chief Executive Officer Arvind Kapil, who previously led retail and mortgage businesses at HDFC Bank.
According to the brokerage, seven of the company's nine CXOs now come from HDFC Bank backgrounds, reflecting a significant shift in leadership and operational strategy.
Jefferies noted that the company is leveraging its refreshed leadership team to strengthen underwriting practices, expand its product portfolio, and accelerate network growth.
- Product Expansion Driving Loan Growth
Over the past year, Poonawalla Fincorp has aggressively broadened its lending offerings by launching six new products, including:
- Prime personal loans
- Commercial vehicle loans
- Gold loans
- Education loans
These newly introduced products already account for approximately 14% of Assets Under Management (AUM) and are expected to become a much larger contributor going forward.
Jefferies estimates that new products could account for nearly 34% of AUM over time, helping drive overall loan book expansion.
The brokerage forecasts the company's AUM to grow at a robust 33% CAGR between FY26 and FY29, from around ₹60,300 crore in FY26.
- Margin Recovery Could Boost Profitability
Another major factor behind Jefferies' positive outlook is the expected improvement in Net Interest Margins (NIMs).
Margins had previously come under pressure after the company reduced exposure to certain high-yield legacy personal loan portfolios. However, the loan mix is now evolving with the reintroduction of calibrated instant personal loans and the addition of higher-yielding segments such as gold loans and prime personal loans.
As these products scale up, Jefferies expects NIMs to expand by approximately 70 basis points over the next three years.
The brokerage also expects operational efficiencies to improve, projecting the company's cost-to-assets ratio to decline from 4.4% in FY26 to 3.9% by FY29.
- Asset Quality Trends Remain Encouraging
Jefferies highlighted significant progress in credit quality.
The company's Gross Non-Performing Asset (GNPA) ratio improved to 1.4% in FY26, compared to 1.8% in FY25, supported by tighter underwriting standards and the gradual run-down of stressed legacy portfolios.
The brokerage also pointed to encouraging early delinquency trends in newer loan cohorts.
According to Jefferies, delinquency levels for loans originated after September 2024 are roughly 50% lower than the previous 12-month cohort.
The increasing contribution from lower-risk products such as education loans and gold loans is expected to further support credit quality.
As a result, Jefferies forecasts credit costs to decline to around 2.2% by FY29, compared to 2.7% in FY26.
- Earnings Could Accelerate Sharply
One of the most compelling aspects of Jefferies’ investment thesis is the expected earnings trajectory.
The company recently strengthened its capital position by raising approximately ₹2,500 crore, pushing Tier-1 capital adequacy above 19.5% and providing ample room for future loan growth.
Jefferies expects Profit After Tax (PAT) to rise sharply from ₹540 crore in FY26 to nearly ₹2,900 crore by FY29.
The brokerage also projects a significant improvement in return ratios:
- Return on Assets (RoA) expected to rise from 1.1% to 2.3%
- Return on Equity (RoE) expected to improve from 6% to 16%
These improvements could place Poonawalla Fincorp among the strongest earnings growth stories in the NBFC space.
- Key Risks Investors Should Monitor
While Jefferies remains constructive on the stock, the brokerage highlighted several risks that investors should track closely:
- Slower-than-expected execution of growth plans
- Pressure on lending margins
- Higher-than-anticipated credit stress
- Challenges in scaling newer product segments
The success of the transformation strategy will largely depend on the company's ability to maintain asset quality while delivering rapid growth.
- Conclusion:
Jefferies believes Poonawalla Fincorp is entering a new phase of growth supported by experienced leadership, expanding lending products, improving asset quality, and stronger profitability metrics. With projected AUM growth of 33%, significant earnings expansion, and improving return ratios, the brokerage sees the company as one of the most compelling growth opportunities in the NBFC sector and has initiated coverage with a ‘Buy’ rating and a target price of ₹490.
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