Rapid growth, thin margins: Poonawalla Fincorp’s strategy under the microscope

New Delhi: Poonawalla Fincorp reported a 53% jump in assets under management (AUM) to Rs 41,273 crore in Q1 FY26, well above its own 35–40% growth guidance. But behind the headline numbers, its razor-thin spreads and heavy reliance on new funding raise questions about long-term profitability.

Aggressive AUM build

MD & CEO Arvind Kapil says the NBFC now spans 13 product lines, including gold loans, pre-owned car finance, personal and business loans, and new shopkeeper and consumer-durables lending. Since April, it has launched gold loans in 80 branches across four states and plans 320 more by year-end. Commercial-vehicle and education loans, rolled out in March, are also gaining traction.

Front-loaded profit plan

Kapil explains the “build AUM first, profits later” approach:

“We will grow our AUM aggressively for the first four quarters and then shift focus to sustained business profits.”

How quickly the new verticals cover their operating costs will determine whether thin margins can widen once scale is achieved.

Equity infusion and rising debt

To finance growth, promoter Cyrus Poonawalla will infuse Rs 1,500 crore via preferential shares, boosting net worth toward Rs 10,000 crore. At the same time, Q1 FY26 saw Rs 5,458 crore raised through NCDs, lifting long-term borrowings to 24% of total liabilities (from 7% in March). Management touts an average borrowing cost of 8.04%, but higher leverage means any uptick in rates could pinch earnings.

Cost of funds and credit costs

The cost of funds dipped marginally from 8.07% to 8.04% in Q1. Meanwhile, the credit cost stands at 1.43%, among the lowest in its peer group. Still, unsecured products like personal and shopkeeper loans may carry higher risk if economic conditions deteriorate.

With another equity raise planned early in FY27, Poonawalla Fincorp’s true test will be converting its rapid AUM growth into healthier net interest margins and consistent profits. Its promise of “sustained business profits” hinges on the new loans and branches quickly overcoming their setup costs.