POONAWALLA Q3 FY25 earnings call.

Guidance to track

• Management reiterates FY25 AUM growth guidance of 30-35% and expects to exceed it. For subsequent years, the guidance range is 30-40%, with Arvind Kapil stating confidence that AUM growth will be 'a notch higher than guidance' given the building blocks in progress.
• Management guided that ROAs will be in the range of approximately 3.5% by the third year (FY27), with individual new products expected to deliver ROAs in the 3%-4.5% range. This is contingent on businesses reaching steady state after the investment phase.
• Management stated confidence that credit costs will continue to decline quarter-over-quarter as legacy book issues are addressed and the new calibrated book scales. The new STPL book bounce ratios are down 50% and collections improved 380bps from Q2 to Q3.
• Industry-first 24/7 Digital Prime Personal Loans for top corporate employees launching in next 15 days. Six new products (Gold Loan, Consumer Durable, Used CV, Shopkeeper Loans, Education Loans, Equipment Leasing) launching Q1 FY26 at Phase-1 locations with leadership and infrastructure already in place.

Risks flagged

• Analyst (Abhijit Tibrewal) pressed management on the quantum of expected write-offs from the inherited ₹6,000 crore STPL book. Management provided qualitative guidance but deflected from giving specific expected loss numbers, stating 'it's better to be conservative.' Write-offs of ₹676 crore in Q3 included ₹520 crore on old book. The resolution timeline and ultimate recovery remain uncertain.
• Q3 provisions of ₹348 crore (₹200 crore for STPL) and write-offs of ₹676 crore create noise in underlying profitability. While PPOP grew to ₹373 crore (up from ₹279 crore in Q2), the additional provisioning for legacy books obscures the true operating performance of the new calibrated book.
• Management announced 7 new product launches (from 4 existing to 11 total) with 400 new branches in 12-15 months. This aggressive expansion requires significant hiring (feet-on-street up 30%), multi-state presence, and simultaneous new product rollout. The gestation period is acknowledged at 4 quarters, creating a multi-year investment phase before returns materialize.
• The mix shift to secured products (now 54% of AUM) is credit-positive but margin-negative since secured products typically yield lower than unsecured. Cost of borrowing at 8.06% with 65% on variable rate also creates interest rate sensitivity in a tight liquidity environment.

Key quotes

• We are quite excited about the phase of the building blocks and increase of businesses over the next four quarters. These investments may have a four-quarter one-year gestation. However, robust profitability, risk-adjusted return, and a truly institutional scale is the visualization.
• We expect that the ROAs will be probably in the range of around 3.5% by the time the third year ends. All these seven businesses that we are confident of pulling off, in my plan, have an ROA of 3%-4.5%. That should give you a sense of what ROAs are roaming in my head.
• We have seen a significant improvement in bounce resolution from Q2 to Q3. In fact, in Q3 also, Q3 average to December bounce rate has further improved bounce resolution. With these write-offs and provisions, we have sufficient provisions.