From Rs 13 to Rs 385: Analysts see more steam left in this NBFC stock after 2,900% rally in three years

Hunting multibaggers at Dalal Street is a tough task for the investors but one such counter has delivered a stellar performance to the investors, turning their investment of Rs 1 lakh into Rs 30,00,000 lakh. The stock is not a lesser-known counter and hogged limelight over its acquisition in mid 2020, when Covid-19 pandemic hit the world.

We are talking about Poonawalla Fincorp, formerly known as Magma Fincorp, which has surged more than 2,960 per cent from its lows around Rs 13 in May 2020 to Rs 385 on Monday, July 24, 2023. If one had invested Rs 1 lakh in the stock, the amount would have become Rs 29.61 lakh.

However, despite this stellar rally, analysts from a host of brokerage firms see more steam left in the counter after its strong performance in the June 2023 quarter. They believe that the rally has more legs and the stock may rise another 28 per cent in the coming months.

Poonawalla Fincorp reported a 62 per cent rise on a year-on-year (YoY) basis in the profit after tax (PAT) at Rs 200 crore for the quarter ended on June 30, 2023. The Adar Poonawalla backed non-banking financial company (NBFC) reported its best ever bottomline performance in Q1FY24.

The shadow lender's total income in the first quarter of the ongoing fiscal rose 66 per cent to Rs 712 crore from Rs 429 crore in the same period a year ago. The company also achieved the highest-ever quarterly disbursements, reaching Rs 7,063 crore, showing a 143 per cent YoY growth and an 11 per cent quarter-on-quarter (QoQ) increase.

Poonawalla Fincorp's asset quality improved in the quarter as gross non-performing assets (NPAs) declined to 1.42 per cent, while net NPA declined to 0.76 per cent. The capital adequacy ratio of the increased to 36 per cent at the end of June 2023.

Poonawalla's 1Q performance was better than expectations. PAT grew on the back of strong AUM growth, expansion in NIM and robust non-interest income. Other income included a one-off gain of Rs 20.5 crore in the nature of gain of derecognition of loans in the legacy book. Operations expense was lower due to reduced employee count said Nirmal Bang Institutional Equities.

Shares of Poonawalla Fincorp were trading around Rs 380.05 on Tuesday, commanding a total market capitalization of about Rs 29,000 crore. The stock had settled at Rs 368 on Monday, after scaling new highs. The stock has surged about 58 per cent from its 52-week low at Rs 243.75 in December 2022.

Considering the strong brand name of the Poonawalla group, its well-calibrated approach focused on credit tested customers in right geographies and segments, its strong capital position & liquidity profile and improving return ratios we are positive on the stock, it added with a 'buy' rating and a revised target price of Rs 438 from Rs 367 earlier.

"The company has strong moats on the liability front, supported by its strong parentage. At its current size, Poonawalla has a huge opportunity in its target product segments," said Motilal Oswal Financial Services citing operating efficiencies and healthy asset quality as the key positives for the company.

"With a healthy capital position, the company has a long runway of strong loan growth ahead. It has laid down a robust foundation for sustainable profitability through initiatives that will lead to lower operating costs, higher business volumes and robust asset quality," it added reiterating the 'buy' tag with target price of Rs 425 apiece.

"Driven by strong NII growth and operating leverage coming into play, Poonawalla Q1 PAT rose. We expect the robust growth, competitive cost of funds and tech savviness to drive the standalone unit 39 per cent loan CAGR over FY23-25, said Anand Rathi with a buy rating and a target price of Rs 471. The brokerage sees higher slippages and less-than-expected loan growth as the key risks.

 

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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