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Broker’s call: Poonawalla Fincorp (HOld)

Target: ₹270

CMP: ₹288.80 

Poonawalla Fincorp (PFL), in its board meeting held on Decemer 14, approved the sale of its housing finance subsidiary — Poonawalla Housing Finance (PHFL) — to TPG (Perseus SG Pte., an entity affiliated with TPG Global, LLC).

The deal has been struck at ₹3,900 crore, which values PHFL at a trailing September 2022 P/BVPS of 3.4x. This is broadly in line with our TP implied trailing September 2022 valuation of 3.3x for the consolidated entity. As per our interactions with the management, post the approval from the respective regulatory authorities, shareholders and lenders, the deal is expected to be completed within 3-6 months.

As of September 2022, PFL (standalone) had an AUM of about ₹12,900 crore and reported RoA of 4 per cent, while PHFL’s AUM stood at about ₹5,600 crore and RoA at 2.4 per cent.

The sale is in line with one of Poonawalla Fincorp’s stated ‘Vision 2025’ objectives — of value unlocking of the housing finance subsidiary.

Considering the ambiguity around operational plans, in terms of composition of product segments, and cost structure/credit costs associated with these, we retain our HOLD rating with unchanged September 2023 TP of ₹270. We will revisit our estimates post further clarification from the management.

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