POONAWALLA - POONAWALLA FINCORP LIMITED Share Price

Management's outlook for Poonawalla Fincorp reflects confidence in achieving sustainable high-quality growth, as expressed by Managing Director Arvind Kapil. Key highlights from the earnings call include:

1. AUM Growth: The company reported an Assets Under Management (AUM) of approximately Rs.60,348 crores, marking a robust year-on-year growth of 69.4%.

2. Performance Metrics:

   • Return on Assets (ROA) increased to 1.81% from 1.2% in the previous quarter, indicating a strong trajectory of improved profitability.
   • Net Interest Margin (NIM) expanded by 43 basis points to 9.05%, consistent with a previous guidance to restore NIM levels to 9% in three to four quarters.
   • Profit After Tax (PAT) reached Rs.255 crores, reflecting a 70% sequential growth.

3. Credit Quality: Gross Non-Performing Assets (GNPA) improved to 1.44% from 1.51% in the prior quarter, and credit costs declined from 2.62% to 2.51%, demonstrating enhanced asset quality and effective risk management.

4. Operational Efficiency: Operating expenses as a percentage of AUM decreased to 4.13%, down from 4.76% previously, showcasing improved cost discipline.

5. Disbursement Contribution: The six new business lines launched contributed nearly 24% to Q4 disbursements, up from 20% in the previous quarter, indicating effective diversification and operationalization of new verticals.

6. Tech and AI Investment: Ongoing investments in technology and artificial intelligence are being framed as pivotal to improving operational leverage and efficiency, with 76 AI projects initiated and 42 already deployed. The transformative AI metrics showed a 100x year-on-year increase in enterprise-wide AI token consumption.

In summary, Poonawalla Fincorp is focusing on strengthening its operational framework, enhancing profitability metrics, and positioning for continued growth through technology and operational efficiencies.

Question 1: "Sir, firstly, on the yield, we have started giving the disbursement yield range. So, sir, could you help me with what would be our disbursement yield for the quarter and what would be our book yield for the quarter? Just trying to understand the difference between the disbursement yield and the book yield."

Answer: "In Q4, our disbursement yield was approximately 15.96%, an increase of 40 basis points. This indicates our pricing power, which is a significant strength. The book yield tends to lag behind but will catch up as our disbursement yield indicates a shift towards a more profitable portfolio. We focus on maintaining our defined risk tolerance across our lending products, ensuring we capitalize on opportunities while managing risks effectively."

Question 2: "The asset quality has been continuously improving. But given the geopolitical situation, do we envisage any risk to that? Are we looking at making any overlay or provisions just to strengthen our provisioning in terms of any risk if it emerges?"

Answer: "We believe our exposure remains well within defined risk tolerances. Our focus on low-risk products like loans against property, which have limits of Rs.50 lakhs, enhances our portfolio's resilience. We conduct stress tests regularly, and while we always monitor external factors, we maintain a cautiously optimistic view on our asset quality amidst geopolitical uncertainties."

Question 3: "In terms of this 6MoB30+, it has been continuously on a declining mode, and that is around 1.05%. So, what could be a steady state number we would be looking at, probably at which level it could settle down?"

Answer: "The steady state for 6MoB30+ should trend downwards further. As the contribution from lower-risk products like gold loans and personal loans increases, this will help maintain a healthier asset mix. We're focused on maintaining quality within our portfolio and expect this improvement in asset quality to continue as our risk calibrations pay off."

Question 4: "On the fee income trend that has been trending very robustly, do you have some guidance around that?"

Answer: "While we don't provide specific guidance on fee income, we expect continued strength across various channels, including processing fees and cross-selling. Our focus on stabilizing distribution and optimizing product offerings should support a regular growth trajectory, ultimately reinforcing our return on assets (ROAs). Fee income will be a core component of this strategy."

Question 5: "How AI and tech has been progressing so far? Where are you in that journey, and what can we look forward to in the next couple of years?"

Answer: "We're leveraging AI across various domains, with 42 of our 76 AI projects now deployed. Our digital processing for personal loans has reached over 33% this quarter. We see AI as a critical enabler of efficiency and innovation, helping us maintain robust growth without proportionate increases in overhead. As we focus on embedding these technologies deeper into our workflows, we anticipate significant advancement in our operational capabilities."