Poonawalla Fincorp reported a strong Q2 FY27, with profit jumping to Rs 375 crore and AUM growing 55%. However, HDFC Securities maintained a 'Reduce' rating, citing persistent credit costs and risks from rapid expansion into unsecured loans.
Poonawalla Fincorp recently reported a strong set of numbers for the second quarter of the 2027 fiscal year. The company's consolidated net profit increased significantly to Rs 375 crore, a sharp rise from Rs 74 crore in the same period last year. Total assets under management (AUM) also grew by 55% year-on-year, reaching Rs 74,008 crore as of September 30, 2026.
Despite these positive financial figures, HDFC Securities has maintained a 'Reduce' rating on the stock, setting a target price of Rs 395. The brokerage suggests that while current growth is strong, the company faces structural hurdles that may limit future gains. The stock closed at Rs 448.05 on Friday, October 9, reflecting the market's ongoing assessment of these factors.
Brokerage Concerns on Credit Costs
A primary concern raised by the brokerage is the company's elevated credit costs. Even with a significant jump in profit, the cost of managing potential bad loans remains persistent at around 2.3%. Financial analysts point out that this level of expense effectively caps the company’s ability to drive better returns on its assets. While the company reported a Return on Assets (RoA) of 2.2% for the quarter, projections suggest this metric may stabilize around 2.1% through fiscal year 2029 if these high provisioning costs continue.
Portfolio Quality and Expansion Risks
Another major point of focus for investors is the concept of portfolio seasoning. Poonawalla Fincorp has seen a 61% two-year growth rate in its assets. While this shows aggressive expansion, it also means a large portion of the loan book is relatively new and has not yet been fully tested through a complete economic cycle. Because of this, the actual quality of the portfolio remains to be proven over time.
The brokerage also highlighted that the company's increasing concentration in unsecured loan segments adds a layer of volatility risk. Additionally, the firm continues to spend heavily on technology and building out its distribution networks, which is expected to keep operating expenses elevated in the near term.
Investors may want to watch how these credit costs evolve in the coming quarters. The management's ability to balance rapid growth with efficient cost control will be critical. The stock has been under pressure over the last 12 months, declining by approximately 15.6%, which reflects the market's caution regarding these operational challenges.