Poonawalla Fincorp

BSE: 524000
Company Snapshot
NSE: POONAWALLA

• Poonawalla Fincorp Limited (erstwhile Magma Fincorp

Limited) is a non-deposit taking NBFC registered with RBI.
• It is engaged in providing consumer and MSME financing, as
well as General Insurance services.
Stock Snapshot
• They offer home financing loans for long and flexible tenures
around competitive rates.
 Market Cap: ₹ 22,400 Cr. • The business comprised more than 46,000+ customers and
 CMP: ₹ 290 the average ticket size ~Rs. 11 Lakhs.
• In the Secured space, Poonawalla Fincorp relaunched Pre-
 Book Value: ₹ 84
Owned Cars (POC) and introduced Loan against property
 Face Value: ₹ 2 (LAP).
 Equity capital: ₹ 153 Cr. • In Unsecured space, it added Loan to Professionals and
Personal Loans to Salaried besides its existing SME Business
 Promoter holding: 62 %
Loans.
 OPMs: 65% • During FY22, Poonawalla Fincorp. had a new Promoter, ‘Rising
 Enterprise Value: ₹ 34,000 Cr. Sun Holdings Private Limited’ which acquired a controlling
stake in the Co. through preferential allotment and infused
 ROCE: 9.5%
fresh capital of Rs. 3,206 Crore making it one of the best
capitalized NBFCs in India.
• Poonawalla Fincorp made an investment of Rs. 500 Crore in
Poonawalla Housing Finance Limited (PHFL), by way of
subscription to ~8.3 crore equity shares at a price of Rs. 59.53
per equity share through Right Issue.
• Poonawalla Fincorp. has 242 branches across 21 States in
India.

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15th March 2023
 Business Segments

Poonawalla Fincorp Limited

is one of the fastest
growing NBFCs in India
today and is now part of the
Poonawalla Group with a
majority stake being owned
by Rising Sun Holdings
Pre-owned car loans
Private Limited, a company
This business comprised retail customers with an average ticket size
owned and controlled by
of ~Rs.3.5 Lakhs, which helped broad-base risks arising from large
Mr. Adar Cyrus Poonawalla. credit losses.

Amongst the leaders in the preowned car financing segment, the

Company graduated to a leadership position in March in POC
financing on a monthly disbursement basis

The pre-owned car market is expected to report sustained growth

at a CAGR of around 11%.

Car ownership declining from 6-7 years to 3-4 years

» Extended waiting period for new cars
» Quick access to finance due to digital journeys
» Consumer age reduction, with the new generation becoming first
time buyers

The Company plans to grow this segment by 15-20% by FY 2024-

25, enhance digital aggregators to provide efficient services and an
end-to-end digital journey resulting in 100% transparency, quick
processing and timely financing.

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15th March 2023

The Company intends to
double its book over the next
three years and carve out a
niche to realize its potential.
15th March 2023
Unsecured loans
Unsecured loans when made to credible customers represent one of
the most attractive segments for NBFC businesses.
Personal and business loans represent a sourcing funnel with a
cross-sell opportunity for products like loan against property, among
others.
» The Company provides a competitive proposition when compared
with banks, opening it to a large financing opportunity
» The Company is building a direct engagement with customers
following aggressive marketing campaigns
» The Company intends to progressively moderate turnaround time
for business loans, strengthening its business
» The Company will widen its footprint pan-India for loans to
professionals (Chartered Accountants, Company Secretaries and
medical professionals, among others.)
The Company’s three-year vision is to leverage its digital access,
broadbase customers, grow the business, establish a direct franchise
and widen its geographic footprint.
Loans against property
The Company broad-based the business of affordable loans against
property (LAP), with addons of SME LAP and small ticket LAP during
the year under review.
» The business was commenced in the second half of the fiscal year.
The business achieved Rs. 212 Cr in disbursements following
commencement Opportunities
» The business will focus on credible customers with superior CIBIL
scores, moderating defaults risk
» The Company will focus on loans against residential properties
(high attachment value and marketability) Outlook
The Company intends to build a robust LAP business, leveraging its
position as one of the most trusted brands.
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 Affordable housing finance
Poonawalla Housing Finance Limited (PHFL), the pan-India pure play
affordable housing entity offers home financing loans for long and
flexible tenures around competitive rates.
The Company prioritizes business growth through direct sourcing
through the branch-led model.
The business comprised more than 46,000+ customers; average
ticket size of Rs. 11 Lakhs
The Company’s business is aligned with the ‘Housing for All’
commitment of the Indian government.
This is opening opportunities to finance the affordable housing
segment, the fastest growing segment of the housing finance sector
The Company addresses a
Poonawalla Housing Finance Limited has grown at a CAGR of ~29%
dedicated and active over the last 4 years and the disbursement growth for this fiscal was
customer base of 46,000+ has been ~57% over the last year.

and possesses a loan book Given the deep unserved potential of the affordable housing
segment, favorable demographics and supportive government
of Rs.16,579 Crores policies, the Company proposes to raise growth capital for its
network expansion and support AUM growth.
The Company intends to double its book over the next three
years and carve out a niche to realize its potential.
Auto lease
At PFL, the auto lease facility is provided to medium and large
corporations for fleet acquisition or employee benefits, with the
corporate entities guaranteeing payments under Master Lease
Contracts.
Under this product, vehicles are leased to corporate employees with
an average salary of H15 Lakhs or more.
A mere 5% vehicles are leased in India; the industry is expected to
report a CAGR of 20% across the future.
The Company intends to deepen its footprint in the corporate sector
(B2B).
» Personal mobility has become a priority following the pandemic,
strengthening demand
» The car lease model delivers a superior tax saving tool for salaried
employees
The Company intends to enhance auto lease visibility through a
digital platform with a three-year vision to upgrade the business to
a car lease franchise.

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15th March 2023

The Company focuses on
consumer and small
business finance through
diverse product offerings
like pre-owned car finance,
personal loans, loans to
professionals, business
loans, small and medium
enterprise loans, loans
against property, medical
equipment loans,
affordable home loans and
auto lease.
15th March 2023
Industry Overview of Underlying Segments
India has a diversified financial services sector undergoing rapid
expansion.
Expansion is in terms of strong growth of existing financial services
firms and new entities entering the market.
The Government and Reserve Bank of India (RBI) have taken various
measures to facilitate easy access to finance for Micro, Small and
Medium Enterprises (MSMEs).
These measures include launching Emergency Credit Line Guarantee
Scheme (ECLGS) for MSMEs, issuing guideline to banks regarding
collateral requirements and setting up a Micro Units Development and
Refinance Agency (MUDRA).
With a combined push by Government and private sector,
India is undoubtedly one of the world's most vibrant capital
markets.
In absence of any negative event, NBFCs would see normalization of
business activities, it would begin the year with sufficient capital
buffers, stable margins, and sizeable on-balance sheet provisioning.
Also, the adequate system liquidity would aid funding. Nevertheless,
an expected increase in systemic interest rates and asset quality
issues in some segments due to the lagged impact of pandemic would
be a drag on the operating performance.
The Indian Loan Against the Property Market is forecast to
grow at a CAGR of over 14% from FY2020 to FY2026.
These loans offer large sums with low rates of interest along with
longer tenures for repayment, thus driving the market.
Loan against property works in favor of the borrower's wishes as the
borrower remains the owner of the property by law during the loan
tenure and is entitled to repay the loan according to his/her financial
condition, further attributing to the growth of the Loan Against
Property Market.
ICRA as per April 22 report expects on-book portfolio of HFCs
to grow by 9% to 11% in FY23 compared to estimated
growth of 8% to 10% in FY22 while the growth for AHFCs is
expected 17- 20% in FY23 compared to 12-15% in FY22.
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 In India, the real estate sector is the second-highest
employment generator, after the agriculture sector.

It is also expected that this sector will incur more non-resident Indian
(NRI) investment, both in the short term and the long term.

Bengaluru is expected to be the most favored property investment

destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa,
Delhi, and Dehradun.

» In FY23, a further improvement in sales across all housing segments

is expected.

However, development focus on mid and affordable segments is

expected to continue.
In India, the real estate
The government is also committed towards boosting affordable
sector is the second- housing.
highest employment
» As delivery timelines remain a key concern even now, demand for
generator, after the ready to move in homes is likely to be remain strong.
agriculture sector. However, the effective and uniform implementation of RERA across all
states/ UTs in India is expected to improve the confidence of
homebuyers and ultimately, lead to greater sales traction in under
construction residential projects.

The India Loan Against Property Market is segmented based on

property type, type of loan, interest rate, source, tenure, region, and
Company.

Based on the source, the market is further bifurcated into bank and
housing finance companies (HFCs).

Among these, the bank segment dominated the market in FY2020,

and the trend is likely to continue until FY2026 as they provide lower
interest rates along with benefitting the customers with myriad
lucrative loan schemes.

» Based on the type of loans, the market is further fragmented into

personal loan, SME loan, building and construction loan, and others.

Among these, a SME loan is expected to dominate the market during

the forecast period, closely followed by building and construction loans
as most of the small and medium-sized enterprises demand funds for
business and capital purposes.

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15th March 2023

The Company tightened the
underwriting standards,
front-ended the write offs,
placed conservative portfolio
guardrails, used analytics for
policy optimization and
monitored early warning
signals from the portfolio.
15th March 2023
Key Business Performance
Disbursements and Loan Assets
The standalone disbursements for the year increased from 2,430
Crores in FY2020-21 to 7,524 Crores in FY2021-22.
Similarly, the consolidated disbursements increased from 3,680
Crores in FY2020-21 to 9,494 Crores in FY2021-22.
The increase was mainly due to addition of new products to the
existing bouquet and discontinuation of non-focus products (New
Cars, CV, CE, Tractors) which involved Cash collection.
The focus of the Company was on maintaining the portfolio quality
and focusing more on credit tested customers.
Total Loan Assets as on 31 March, 2022 on standalone basis stood
at 11,765 Crores against 10,563 Crores for the previous year and on
consolidated basis at 16,579 Crores against 14,225 Crores for the
previous year.
Asset Quality
The consolidated Gross Stage 3 Assets ratio, stood at 2.7% as on 31
March, 2022 compared to 3.7% as on 31 March, 2021.
Similarly, the Net Stage 3 Assets ratio on loans stood at 1.1% as on
31 March, 2022 compared to 1.2% as on 31 March, 2021.
Improvement in Asset Quality is evident from the
significantly improved Collection Efficiency of 108% in
March, 2022 compared to 96% in December 19 which was a
pre-Covid period.
The Company holds cumulative provision against the potential
impact of COVID-19 to the tune of 152 Crores (714 Crores as on 31
March, 2021) and basis management estimate is adequate to cover
any further impact of COVID-19 on the entire loan portfolio.
Liquidity
Liquidity is composed of cash/cash equivalents, available bank lines
and stock of unencumbered assets:
Company exited March 2022 with liquidity of 3,890 Crores
comprising of available cash and cash equivalent unutilized credit
limits and partially undrawn term loans.
Close to 50% of the incremental credit lines were received
from private sector and foreign banks to diversify the
borrowing base.
Company also raised commercial paper aggregating to 400
Crores.
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 Strengths

Brand strength: Poonawalla Fincorp is the flagship financing arm

of Poonawalla Group with shared brand identity and full support
from parent organization.

Robust Balance sheet: Post infusion of 3,456 crores in May’21 ,

the Company’s debt/equity stands at 1.6x which provides ample
room for growth without the need to raise further equity in near
term.

Experienced Management team: Poonawalla Fincorp is a

professionally run organization. The completion of hiring of senior
management is a step in that direction.

The senior management has taken charge and comes with a

The ratio of Home Loans varied experience. The amalgamation of management team with
in fresh disbursements diverse experience has further enriched the Company.

grew from 37% in FY Efficient liability franchisee: Driven by two notch

2017-18 to 71% in FY improvements in long term credit rating to AA+ (stable) by CARE
and AA+ (stable) rating assigned by CRISIL supported by Brand
2021-22 strength, robust Balance Sheet and effective Management team,
the Company has the capability to raise low-cost debt capital at
competitive rates.

Low borrowing cost has enabled the Company, to realign

its focus from ‘high yield - high credit cost’ customer
segment to better credit quality customer segments, to
have the headroom for appropriately pricing the products
and hence to achieve higher risk adjusted returns.

Retail consumer franchisee: Having seen multiple market

cycles, the Company has ‘deep understanding’ of retail customer
segments.

This arms the Company with knowledge on risks embedded, the

behavioral pattern of customers and the needs and wants of the
customer segments it operates in.

The usage of this institutional knowledge in underwriting policies

and sensing of market opportunity gives inherent strength to the
Company.

The granularity of the Company’s retail book given its low average
ticket size and its Pan-India geographical spread shields the
Company from concentrated credit losses and helps spread the
localized risks.

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The new management
accelerated the Company’s
digitalization program with
the objective to enhance
organizational agility and
responsiveness.
15th March 2023
Opportunities
Untapped credit needs of MSME segment
The Company offers secured as well as unsecured business loans to
support MSME sector in India, where traditional banking system is
unable to meet the faster TAT and customized needs of MSME.
The Company aims to compete on the back of its enhanced digital
lending capabilities as well as its wide presence in industry clusters.
Consolidation and shift towards digital and organized space
in used car market
The Company is well placed to take advantage of emerging trend by
partnering with all major digital aggregators as well as strengthening
its direct distribution capabilities.
Upward trend of digital adoption, favorable demography
dividend and low financial inclusion
The Company plans to leverage its capabilities to offer 100% digital
customer loan journey as well as sourcing through digital medium to
tap into the digital savvy young age population.
CHANGE IN CONTROL
The Company had a new Promoter, Rising Sun Holdings
Private Limited which acquired a controlling stake in the
Company through preferential allotment and infused fresh
capital of 3,206 Crore making the Company one of the best
capitalized NBFCs in India.
Consequently, your Company has become a subsidiary of Rising Sun
Holdings Private Limited (“RSHPL”) and Poonawalla Housing Finance
Limited a step-down subsidiary of RSHPL.
The Company and its subsidiary have been renamed and rebranded
under the Poonawalla brand. W.e.f. July 22, 2021, Magma Fincorp
Limited has been renamed to Poonawalla Fincorp Limited and its
subsidiary, Magma Housing Finance Limited has been renamed to
Poonawalla Housing Finance Limited.
Subsequently the registered office of the Company has also been
shifted from West Bengal, Kolkata to Maharashtra, Pune.
Post reclassification the Promoters shareholding is 61.50%.
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 Financial Snapshot

India’s banking loan book of

about USD 1.6 trillion is
likely to grow to about USD
2.6 trillion, catalyzing India’s
journey towards a USD 5
trillion economy.

Most bank loans taken by the Company were re-priced;

incremental borrowings were mobilized at a cost of below 7%
per annum.

The Company’s net interest margin (NIM) increased to 8.9%

in FY2021-22 as compared to 8.2% in FY 2020-21 on account
of decrease finance cost.

The write offs and provision decreased from Rs. 144,799

Lakhs in FY 2020-21 to Rs.7,756 Lakhs in FY 2021-22.

On a Standalone basis, the Capital Risk Adequacy Ratio

(CRAR) for the year FY 2021-22 was 49.06% against the RBI
stipulated norm of 15%.

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15th March 2023
 Key Risks
• New entrant in certain product segments: Poonawalla Fincorp
had introduced several new products during FY22 and has a
pipeline of new products to be launched during FY23
• Post the acquisition in May 2021, the Company has made
significant progress in consolidation of people, products,
branches, digital capabilities, and risk management systems.
However, synchronized functioning and organizational
stability holds the key for avoiding delay in execution of
planned expansion.
• The NBFC space in India has seen spurt of consolidation,
entry of new players, and emergence of new business models
in recent years. Irrational pricing of the products may lead to
worsening of risk adjusted returns for the industry
By 2030, India will move from
• Sharper monetary tightening: Energy prices sustaining at
being an economy led by the
elevated levels, high fiscal deficit, and higher than anticipated
bottom of the pyramid, to one
increase in inflation would lead to sharper monetary
led by the middle-class.
tightening and rise in sovereign risk premium. This will result
in unexpected rise in borrowing cost as well as slowdown in
credit growth

Our View
• A series of sweeping changes transpired in just a couple of
years at Poonawalla Fincorp including, a new management
control, new growth target, new technology blueprint that is
likely to result in growth higher than the industry average.

• The projected outcome of all the key triggers is expected to

graduate the Company into a new orbit and we see a
reasonable upside making it a quality business for your long-
term portfolio.

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15th March 2023
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