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Shares of Poonawalla Fincorp (formerly known as Magma Fincorp) hit 52-week high of Rs 343.75, after rallying 8 per cent on the BSE in Wednesday’s intra-day trade on healthy earnings hopes. The stock of Cyrus Poonawalla group promoted non-banking finance company (NBFC) has zoomed 44 per cent in the past one month, as compared to 6 per cent gained in the S&P BSE Sensex.
At 10:24 am; Poonawalla Fincorp traded 6 per cent higher at Rs 335.40 on back of heavy volumes. In comparison, the S&P BSE Sensex was up 0.08 per cent at 58,622 points. The trading volumes on the counter more-than-doubled with a combined 16.56 million equity shares representing 2 per cent of total equity that changed hands on the NSE and BSE.
In the past six months, the stock has more-than-doubled or zoomed 110 per cent, as compared to 3.3 per cent decline in the S&P BSE Sensex. In January, the rating agency CRISIL Ratings assigned its long-term rating of ‘CRISIL AA+/Stable’ to non-convertible debentures and bank facilities of Poonawalla Fincorp. The ratings agency had also reaffirmed its short-term rating of ‘CRISIL A1+’ on the commercial paper programme.
The ratings factor enhanced financial flexibility post the significant capital infusion of Rs 3,456 crore in May 2021 that resulted in healthy capitalization and low leverage. Of this, equity infusion of Rs 3,206 crore came from Rising Sun Holdings Private Limited (RSHPL) while the remaining amount was infused by promoters of erstwhile Magma. RSHPL is a special purpose vehicle owned and controlled by Mr Adar Poonawalla, given the high strategic importance, the shared brand name and management control.
Highlighting the rationale behind the upgrade in ratings, CRISIL said, “Additionally, the revamped senior management team consisting of seasoned professionals from reputed financial institutions, ongoing improvement in resource profile, and funding costs are also the key strengths driving the ratings.”
Poonawalla Fincorp is in the midst of new promoter-driven turnaround aimed at becoming one of the Top-3 NBFCs for consumer and small business finance. “The company expects their portfolio to triple in around four years with RoAs moving toward 3.0-3.5 per cent on lower cost of borrowing, portfolio shift toward secured vs. unsecured portfolio of 65 per cent: 35 per cent, and tighter asset-quality control,” analysts at Emkay Global Financial Services said.
The firm launched new product segments, such as small-ticket LAP and medical equipment loans in quarter that ended in December 2021 (Q3FY22). Few other products such as SME LAP that was introduced in Q2 is also gaining stability while its co-lending fintech partnerships like Cars24 is already out.
Analysts at Emkay Global believe that the defocused book of 24 per cent is the company’s strength. “Credit rating upgrades have already resulted in154 basis points (bps) reduction in the cost of funds, while the overall guidance is a decline of 200-250 bps. The cost-to-income ratio at 59 per cent reflects costs associated with implementation is their turnaround strategy,” the brokerage firm added.
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