The quarter's performance reflects the NBFC's continued focus on expanding its loan book and improving operational efficiency. Net sales in Q2 FY26 surged to ₹1,542.30 crores, representing a robust 17.38% sequential growth and a remarkable 55.97% year-on-year increase. This growth trajectory underscores the company's aggressive disbursement strategy and market share gains in the competitive consumer finance segment.
Despite the strong topline expansion, investors have responded cautiously to the results, with the stock declining 2.47% on the day following the announcement, closing at ₹526.20 on 17 October 2025. This reaction likely reflects concerns about the company's elevated valuation multiples and the sustainability of its growth momentum in a rising interest rate environment.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 1,542.30 | 17.38% | 74.20 | 18.53% | 49.19% |
| Jun'25 | 1,313.97 | 12.66% | 62.60 | 0.43% | 49.58% |
| Mar'25 | 1,166.27 | 10.33% | 62.33 | 232.78% | 47.25% |
| Dec'24 | 1,057.03 | 6.89% | 18.73 | -103.98% | 40.24% |
| Sep'24 | 988.87 | 1.15% | -471.04 | -261.51% | -27.37% |
| Jun'24 | 977.59 | 6.84% | 291.64 | -12.08% | 72.22% |
| Mar'24 | 915.00 | 19.98% | 331.70 | 25.10% | 73.63% |
| Dec'23 | 762.61 | 3.24% | 265.14 | -68.97% | 76.64% |
Financial Performance: Sequential Momentum Accelerates
Poonawalla Fincorp's Q2 FY26 results demonstrate accelerating sequential momentum across key financial metrics. Net sales of ₹1,542.30 crores in Q2 FY26 represented the highest quarterly revenue in the company's recent history, growing 17.38% quarter-on-quarter from ₹1,313.97 crores in Q1 FY26. On a year-on-year basis, revenue surged 55.97%, reflecting the company's aggressive expansion in loan disbursements and market penetration.
The operating profit before depreciation, interest, and tax (excluding other income) stood at ₹758.70 crores in Q2 FY26, the highest ever recorded, with an impressive operating margin of 49.19%. This margin, whilst slightly lower than the 49.58% achieved in Q1 FY26, remains robust and indicates strong cost management despite rising employee costs, which increased to ₹256.36 crores from ₹213.16 crores quarter-on-quarter.
Interest expenses continued their upward trajectory, reaching ₹637.81 crores in Q2 FY26 compared to ₹546.09 crores in the previous quarter, reflecting both higher borrowing costs and increased leverage to fund asset growth. The company's net interest margin dynamics remain under pressure as the cost of funds rises faster than yields on the loan book.
Net profit margin in Q2 FY26 stood at 4.81%, marginally higher than the 4.76% recorded in Q1 FY26, demonstrating the company's ability to maintain profitability despite elevated interest costs. The tax rate remained stable at 24.97%, in line with the previous quarter's 24.98%.
Operational Dynamics: Balancing Growth and Profitability
Poonawalla Fincorp's operational performance in Q2 FY26 reflects the delicate balance between aggressive growth and maintaining profitability in a challenging macroeconomic environment. The company's focus on expanding its loan book has resulted in consistent quarter-on-quarter revenue growth, with the latest quarter marking the eighth consecutive period of sequential expansion.
The company's asset base has grown substantially, with current assets reaching ₹233.19 crores as of March 2025, though this represents a decline from ₹555.01 crores in the previous year. More significantly, the company's investment portfolio stood at ₹1,341.70 crores, up sharply from ₹878.40 crores, indicating strategic deployment of capital into liquid assets and securities.
On the liability side, current liabilities surged to ₹26,923.55 crores in March 2025 from ₹16,023.29 crores in March 2024, reflecting the company's aggressive borrowing to fund asset growth. This has resulted in a debt-to-equity ratio of 2.62x, which, whilst typical for NBFCs, remains elevated and exposes the company to refinancing risks and interest rate volatility.
⚠️ Leverage Concerns Require Monitoring
Poonawalla Fincorp's debt-to-equity ratio of 2.62x, combined with total debt of ₹25,881 crores, represents significant financial leverage. Whilst this is not uncommon in the NBFC sector, the elevated leverage amplifies the company's vulnerability to interest rate increases and potential asset quality deterioration. The company's ability to maintain asset quality and access cost-effective funding will be critical to sustaining profitability.
The company's cash flow dynamics present a mixed picture. Operating cash flow in FY25 was negative at ₹10,569.43 crores, the lowest in recent history, reflecting aggressive loan disbursements that consumed significant working capital. This was partially offset by financing cash inflows of ₹10,820 crores, demonstrating the company's ability to raise capital from debt markets. However, the closing cash balance declined sharply to ₹24 crores from ₹255 crores, indicating tight liquidity management.
Asset Quality: The Unspoken Challenge
One of the notable gaps in Poonawalla Fincorp's disclosed financial data is the absence of detailed asset quality metrics such as gross non-performing assets (GNPA) and net non-performing assets (NNPA). For an NBFC operating in the consumer finance segment, asset quality is a critical determinant of long-term sustainability and profitability.
The company's historical performance shows significant volatility, particularly the exceptional loss of ₹471.04 crores recorded in Q2 FY24, which suggests potential asset quality challenges or one-time provisioning events. Whilst the company has recovered strongly since then, the lack of transparency around NPAs makes it difficult for investors to fully assess the underlying health of the loan book.
The provision for taxes in Q2 FY24 was negative at ₹159.41 crores, indicating significant write-offs or provisioning during that period. This raises questions about the adequacy of current provisioning levels and whether the company is fully accounting for potential credit losses in its loan portfolio.
Peer Comparison: Valuation Premium Without Commensurate Returns
Poonawalla Fincorp's valuation metrics stand in stark contrast to its peer group in the Finance/NBFC sector. With a price-to-book value ratio of 5.14x, the company trades at a significant premium to peers such as Mahindra & Mahindra Financial Services (1.89x) and Cholamandalam Investment and Finance Company (2.83x). This premium valuation is not supported by superior return metrics.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt to Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Poonawalla Fincorp | NA (Loss Making) | 5.14 | -1.20 | 3.19 | 0.00 |
| Tata Investment Corporation | 140.27 | 1.48 | 1.00 | 0.00 | 0.00 |
| M&M Financial Services | 17.77 | 1.89 | 10.51 | 5.53 | 2.22 |
| Sundaram Finance | 26.05 | 3.79 | 14.24 | 4.63 | 0.78 |
| Cholamandalam Financial | 16.09 | 2.83 | 17.37 | 13.16 | 0.07 |
The comparison reveals several concerns. Poonawalla Fincorp's return on equity stands at a negative 1.20%, significantly lagging peers such as Cholamandalam Financial (17.37%) and Sundaram Finance (14.24%). This negative ROE, combined with the highest P/BV multiple in the peer group, suggests the market is pricing in substantial future growth that has yet to materialise in actual returns.
Furthermore, the company offers no dividend yield, unlike peers such as M&M Financial Services (2.22%) and Sundaram Finance (0.78%), providing no income component to total shareholder returns. The debt-to-equity ratio of 3.19x is moderate compared to highly leveraged peers like Cholamandalam (13.16x) but still represents substantial financial risk.
Valuation Analysis: Premium Pricing for Uncertain Prospects
Poonawalla Fincorp's current valuation metrics suggest the stock is trading at levels that appear disconnected from its fundamental performance. The company's enterprise value-to-sales ratio of 14.81x and EV/EBITDA multiple of 49.40x are exceptionally high for an NBFC, particularly one with negative trailing twelve-month earnings.
The stock's classification as "VERY EXPENSIVE" in the company's own valuation grading system, which changed from "Attractive" to "Very Expensive" on 28 October 2024 at ₹319.90, reflects the dramatic re-rating the stock has undergone. At the current price of ₹526.20, the stock has appreciated 64.52% from that inflection point, far outpacing any improvement in underlying fundamentals.
Valuation Dashboard
P/E Ratio (TTM): NA (Loss Making)
Price to Book Value: 5.14x (Very High)
EV/EBITDA: 49.40x (Extremely Elevated)
Dividend Yield: 0.00%
Valuation Grade: Very Expensive
52-Week Range: ₹267.25 - ₹570.40
Current Price: ₹526.20 (7.75% below 52W high)
The stock's technical position provides some support, trading above all key moving averages including the 200-day MA at ₹393.24, indicating strong momentum. However, this momentum-driven rally has pushed valuations to unsustainable levels, creating significant downside risk if growth expectations are not met or if broader market sentiment turns negative.
Shareholding Pattern: Promoter Confidence and Institutional Interest
The shareholding pattern of Poonawalla Fincorp reveals interesting dynamics that provide insight into investor sentiment and confidence in the company's prospects. Promoter holding increased to 63.97% in Q2 FY26 from 62.46% in Q1 FY26, marking a significant 1.51 percentage point increase and demonstrating strong promoter confidence in the business.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 63.97% | 62.46% | 62.53% | +1.51% |
| FII Holding | 10.27% | 10.76% | 9.98% | -0.49% |
| Mutual Fund Holding | 5.34% | 5.06% | 4.29% | +0.28% |
| Insurance Holdings | 5.68% | 6.16% | 5.78% | -0.48% |
| Other DII Holdings | 1.00% | 1.04% | 1.04% | -0.04% |
| Non-Institutional | 13.75% | 14.52% | 16.37% | -0.77% |
Foreign institutional investor (FII) holding declined marginally to 10.27% from 10.76%, suggesting some profit-booking by global investors at elevated valuations. However, mutual fund holdings increased to 5.34% from 5.06%, with the number of mutual funds holding the stock rising to 17 from 15, indicating growing domestic institutional interest.
Insurance company holdings decreased to 5.68% from 6.16%, with the number of insurance companies reducing from 5 to 4, which could signal concerns about risk-adjusted returns at current valuations. The consistent decline in non-institutional holdings, from 16.37% in March 2025 to 13.75% in September 2025, suggests retail investors have been exiting positions, possibly taking profits after the stock's substantial rally.
Notably, promoters have maintained zero pledging of shares, which is a positive indicator of financial stability and confidence in the company's future prospects.
Stock Performance: Momentum Driven Rally Faces Headwinds
Poonawalla Fincorp's stock has delivered exceptional returns over various timeframes, significantly outperforming both the benchmark Sensex and its sector peers. Over the past year, the stock has gained 39.39%, generating an alpha of 35.75% over the Sensex's 3.64% return. The year-to-date performance is even more impressive, with a 67.26% gain compared to the Sensex's 7.44% return, resulting in an alpha of 59.82%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.53% | 1.76% | -2.29% |
| 1 Month | 17.21% | 1.52% | +15.69% |
| 3 Months | 17.67% | 2.06% | +15.61% |
| 6 Months | 36.66% | 6.87% | +29.79% |
| YTD | 67.26% | 7.44% | +59.82% |
| 1 Year | 39.39% | 3.64% | +35.75% |
| 2 Years | 39.17% | 26.38% | +12.79% |
| 3 Years | 62.18% | 43.73% | +18.45% |
The stock's beta of 1.35 indicates it is a high-beta security, typically rising and falling by a larger proportion than the broader market. This characteristic has worked in favour of investors during the recent bull run but also implies greater downside risk during market corrections. The stock's volatility of 40.95% over the past year, compared to the Sensex's 12.55%, underscores this elevated risk profile.
Recent trading activity shows the stock is experiencing some near-term weakness, declining 0.53% over the past week and 2.47% on the most recent trading day. The stock is currently trading 7.75% below its 52-week high of ₹570.40, suggesting some profit-taking at elevated levels. However, it remains 96.89% above its 52-week low of ₹267.25, indicating the substantial appreciation over the past year.
The technical trend remains bullish, with the stock trading above all major moving averages. The trend changed to "Bullish" from "Mildly Bullish" on 1 October 2025 at ₹502.25, and the stock has gained 4.77% since that inflection point. However, delivery volumes have declined 27.83% compared to the 5-day average, suggesting reduced conviction in recent buying activity.
"Poonawalla Fincorp's stellar stock performance reflects market enthusiasm for the NBFC's growth story, but the disconnect between valuation multiples and fundamental returns raises questions about sustainability."
Investment Thesis: Growth Potential Versus Valuation Risk
The investment case for Poonawalla Fincorp presents a classic dilemma: strong operational momentum and market positioning offset by stretched valuations and uncertain return metrics. The company's Mojo Score of 70 out of 100, placing it in the "BUY" category, reflects this mixed picture.
The company's quality grade remains "AVERAGE," a status it has maintained for 18 consecutive quarters since March 2021. This average quality rating, combined with a financial trend that recently turned "VERY POSITIVE" as of December 2024, suggests improving operational performance. The technical trend is classified as "BULLISH," providing momentum support for the stock price.
However, the valuation grade of "VERY EXPENSIVE" represents a significant headwind. The company's five-year sales growth of 13.08% is respectable but not exceptional, and the absence of meaningful profitability metrics (negative ROE, unavailable ROCE) makes it difficult to justify the premium valuation multiples.
✓ KEY STRENGTHS
- Consistent revenue growth with Q2 FY26 marking the highest quarterly sales at ₹1,542.30 crores
- Strong sequential profit momentum with net profit up 18.53% QoQ to ₹74.20 crores
- Robust operating margins of 49.19% demonstrating operational efficiency
- Increased promoter holding to 63.97%, up 1.51 percentage points QoQ, signalling confidence
- Zero promoter pledging indicating strong financial position of promoters
- Exceptional stock performance with 39.39% return over past year, outperforming sector by 24.99%
- Growing institutional interest with mutual fund holdings rising to 5.34% from 5.06%
⚠ KEY CONCERNS
- Negative return on equity of -1.20% indicating poor capital efficiency
- Very expensive valuation with P/BV of 5.14x, highest among peer group
- Elevated debt-to-equity ratio of 2.62x exposing company to refinancing and interest rate risks
- Negative operating cash flow of ₹10,569.43 crores in FY25, the lowest in recent history
- Absence of disclosed asset quality metrics (GNPA/NNPA) limiting transparency
- Historical volatility with exceptional loss of ₹471.04 crores in Q2 FY24 raising questions about provisioning adequacy
- No dividend yield offering no income component to total returns
Outlook: What Lies Ahead
The outlook for Poonawalla Fincorp hinges on several critical factors that will determine whether the company can justify its premium valuation and deliver sustainable returns to shareholders. The company's ability to maintain loan book growth whilst improving asset quality will be paramount, particularly given the absence of transparent NPA disclosures.
The macroeconomic environment presents both opportunities and challenges. Rising interest rates could compress net interest margins further, impacting profitability. However, strong consumer credit demand in India's growing economy provides tailwinds for loan disbursement growth. The company's focus on operational efficiency, evidenced by stable margins despite rising costs, will be crucial in navigating this environment.
POSITIVE CATALYSTS
- Continued strong loan disbursement growth driving revenue expansion
- Operational leverage benefits as fixed costs get absorbed by higher volumes
- Potential margin improvement if cost of funds stabilises
- Increased institutional participation providing liquidity and price support
- Strong promoter commitment with rising stake and zero pledging
RED FLAGS
- Further interest rate increases compressing net interest margins
- Asset quality deterioration requiring higher provisioning
- Inability to improve return on equity to peer levels
- Valuation de-rating if growth expectations are not met
- Refinancing challenges given elevated debt levels and tight liquidity
Investors should closely monitor the company's quarterly asset quality trends, particularly GNPA and NNPA ratios when disclosed. Any deterioration in asset quality could necessitate higher provisioning, directly impacting profitability. Additionally, the company's ability to access cost-effective funding and maintain adequate liquidity will be critical given the negative operating cash flows and elevated leverage.
The stock's technical momentum remains strong, but the high volatility (40.95%) and beta (1.35) suggest investors should be prepared for significant price swings. The recent decline in delivery volumes and marginal FII selling could be early warning signs of weakening conviction at current price levels.
The Verdict: Cautious Optimism with Valuation Concerns
Score: 70/100
For Fresh Investors: Poonawalla Fincorp offers exposure to India's growing consumer finance market with strong operational momentum. However, the current valuation of 5.14x P/BV and very expensive grading suggest limited margin of safety. Fresh investors should consider accumulating on dips rather than chasing the stock at current levels. A more attractive entry point would be closer to ₹450-475, offering better risk-reward.
For Existing Holders: The stock has delivered exceptional returns, and the improving financial trend supports a continuation of the holding. However, given stretched valuations and negative ROE, existing investors should consider booking partial profits at current levels (around 25-30% of holdings) and riding the remaining position with a trailing stop-loss at ₹480. This approach balances participation in potential upside with protection against valuation-driven corrections.
Fair Value Estimate: ₹475 (9.73% downside from current levels). The fair value estimate is based on a target P/BV of 4.5x applied to the book value per share of ₹105.77, representing a more reasonable valuation multiple aligned with peer averages and accounting for the company's growth trajectory offset by profitability concerns.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
