POONAWALLA Q1 FY25 earnings call.
A source-linked concall view: reported numbers, management language, guidance, commitments and risks that should carry forward.
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Poonawalla Fincorp reported Q1 FY25 with PAT of INR 292 crore (+46% YoY) on AUM of INR 26,972 crore (+52% YoY), with the new MD & CEO Arvind Kapil (ex-Axis Bank, 25+ years experience) outlining a 5-10 year strategic vision. Gross NPA improved to 0.67% (down 75bps YoY) while maintaining a balanced secured/unsecured mix of 49%/51%. The management team is focusing on collection infrastructure strengthening, STP portfolio calibration (unseasoned book started 4-5 months ago), and launching new products including consumer durables, shopkeeper loans, and used commercial vehicles. Guidance targets 30-35% AUM growth in FY25, scaling to 35-40% annually over 5 years to achieve 5-6x book size expansion. Profitability growth is expected to mirror AUM growth from Year 3 onwards after foundational investments. Key risk: unseasoned STP book requires monitoring amid regulatory scrutiny on unsecured retail growth.
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Guidance to track
- First year AUM growth target of 30-35% YoY as management focuses on consolidating existing businesses and reviewing risk management processes before scaling.
- Management targets 35-40% annual AUM growth over the next five years, aiming to scale the book by 5-6 times in 5-6 years.
- Arithmetic mean of profitability growth expected to align closely with AUM growth projections starting from third year after foundation building.
- Cost of borrowing expected to remain in similar range in future quarters despite MCLR increases by banks; 70% of borrowings are variable rate.
Risks flagged
- The self-originated book (started Q4 FY24) is unseasoned and being closely monitored for credit and collection performance. Management has asked team to review credit policies and beef up collections.
- Approximately 80% of write-offs pertain to the legacy/acquired book. While credit cost in quarterly numbers looks impressive, annual write-offs run at nearly 4% of income. INR 350 crore outstanding from discontinued book plus INR 770 crore DA book acquired.
- RBI Governor has repeatedly flagged concerns about excessive growth in unsecured retail lending. Management acknowledges need to lift quality of unsecured risk while pursuing growth targets.
- First 4 quarters will see higher investments in collections, technology, and new business launches. This front-loaded spending may constrain near-term profitability expansion.
Key quotes
- Our fundamental guiding philosophy for all businesses has to be predictable, sustainable, and productive. So we plan to create a predictable, sustainable model.
- I think there's one business, STP, that we wanna closely review and closely measure. I think it's an interesting business but I think we wanna for a quarter or two both on credit and collections review it more closely.
- We want to achieve 5-6 times in 5-6 years. We are ambitious on this figure, and we are determined to make it happen. Third year projection, the profitability will be closer to an arithmetic mean, middling close to AUM projections.
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