Poonawalla Fincorp: Motilal Oswal Sees 28% Gain, Recommends Buy at INR 610
Overview
Motilal Oswal initiated a BUY recommendation for Poonawalla Fincorp (PFL), setting a target price of ₹610. While Q3 FY26 net profit missed analyst estimates, the brokerage highlighted that strategic digital and distribution investments are now complete. This positions PFL for significant operating leverage and balance sheet growth, marking an inflection point for profitability improvement.
Stocks Mentioned
Q3 Performance Amid Strategic Spending
Motilal Oswal has reiterated its Buy rating on Poonawalla Fincorp (PFL), projecting a target price of INR 610. This target suggests a potential upside of approximately 28% from current market levels. The firm's assessment comes despite a Q3 FY26 Profit After Tax (PAT) that grew by roughly 102% quarter-on-quarter to INR 1.5 billion, falling short of analyst expectations by about 21%. However, Net Interest Income (NII) showed robust year-on-year growth of approximately 50%, reaching INR 9.2 billion, which was in line with forecasts.
Operational Leverage and Future Outlook
Other income surged by an impressive 173% year-on-year to INR 1.6 billion, largely driven by elevated fee income during the quarter. Operating expenses (Opex) increased by 90% year-on-year to INR 5.5 billion, though this was also within expectations. Crucially, the cost-to-income (C/I) ratio declined quarter-on-quarter to approximately 51%, down from 57% in the previous quarter and comparing favorably to 43% in the prior year. Management indicated that substantial strategic investments in digital platforms and distribution networks will be finalized in FY26, positioning PFL to capitalize on operating leverage. This strategic completion is expected to foster gradual improvements in opex ratios across its product lines, leading to enhanced profitability.
Valuation and Price Target Rationale
Poonawalla Fincorp's Profit Before Provision and Contingencies (PPoP) grew by 38% year-on-year to INR 5.3 billion, meeting expectations. With key investments largely concluded and capital flexibility bolstered by a proposed Qualified Institutional Placement (QIP), PFL is considered to be at an inflection point. The brokerage anticipates strong profitability improvements and rapid balance sheet expansion. The INR 610 price target is premised on a valuation of 3 times the estimated Book Value Per Share (BVPS) for December 2027.
