Poonawalla Fincorp is this week's top stock; why analysts are bullish
The NBFC reported a decent performance in the June quarter, led by healthy growth in AUM and a stable cost-to-income (CI) ratio. The net profit registered a 46% year-on-year growth, surpassing Reuters-Refinitiv estimates by 2.6%. A strong growth in personal and consumer loans and secured loans (LAP and used car loans) aided 52% y-o-y growth in AUM. The CI ratio remained stable sequentially (declined y-o-y) despite an increase in the operating expenditure.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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The company is benefitting from sectoral tailwinds, such as increased consumer spending, credit uptake in industrial and agriculture sectors, innovation, technology adoption and growing automobiles, MSME and real estate sectors. Its superior understanding of regional dynamics, customised products, customer orientation and prompt service standards are other factors driving sectoral growth. As per the company’s 2023-24 annual report, the industry’s secured and unsecured loan segments are likely to grow 16% and 20%, respectively, on a y-o-y basis in 2024-25.
The company’s new management has come up with an impressive strategic vision to take the company to the next phase of growth. The management aims to increase its AUM by 5-6 times over the next five years by expanding into new product lines, higher customer acquisition, and investments in collection infrastructure. Focus on products like consumer durable loans, shopkeeper loans, and used CV loans, through cross-selling and customer engagement via digital and physical touchpoints, are expected to support margins and profitability in the future.
The company continues to invest in technology and has got a digital platform for improving service delivery. It has also developed innovative fintech solutions for offering more personalised and flexible financial products to its customers. It is leveraging data analytics and machine learning for algorithm-based lending approaches to streamline operations and decision-making. Such investments are helping the company improve productivity and strengthen competitive advantage.
The asset quality is healthy and it reported a sequential improvement in GS-3 and NS-3 ratios (measures of asset quality) in the June quarter. A geographically diversified portfolio, better customer accessibility, low market concentration risks, focus on prime bureau-tested customers, rigorous risk management procedures and superior portfolio quality aid in maintaining a stable asset quality.
Despite higher interest rates, the company’s cost of borrowing continues to remain stable due to efficient liability book management. With 70% of liabilities variable in nature, the company is well placed to benefit from the reversal in the interest rate cycle. The company also enjoys a high capital adequacy ratio (measure of NBFC’s financial strength) and a strong liquidity profile.
Selection methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ during the past month. The consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (1 for strong buy, 2 for buy, 3 for hold, 4 for sell, 5 for strong sell). An improvement in consensus analyst rating indicates that the analysts are getting bullish on the stock. Only stocks with more than five analysts covering them are considered. You can see similar consensus analyst rating changes during the past week in ETW 50 table.
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This story originally appeared on: India Times - Author:Faqs of Insurances
