­­Acuité has taken a consolidated view on PFL and its subsidiaries and joint venture companies namely Poonawalla Housing Finance Limited (PHFL), Jaguar Advisory Services Private Limited (JASPL) and Magma HDI General Insurance Company Limited (MHDI). The consolidation is in view of the shared brand, common managerial team along with strong operational and financial synergies among the group companies. Further, Acuité has also factored in the support expected from the new promoter, RSHPL (Cyrus Poonawalla Group) given its controlling ownership of about 61% in PFL besides shared brand name.
 

­Strong promoter viz. Poonawalla Group
In FY2022, Cyrus Poonawalla Group, through RSHPL took controlling ownership of about 60 percent in PFL via capital infusion of Rs.3,206 Cr. RSHPL is owned and controlled by Mr. Adar Poonawalla who is also the CEO of Serum Institute of India Pvt. Ltd. (SII). The Group has diversified business interests in Pharmaceuticals & Biotechnology, Finance, Clean Energy, Hospitality & Realty and Aviation. The Group’s flagship company, SII, is ranked as the world’s largest vaccine manufacturer and India’s No. 1 biotechnology company by number of doses produced and sold globally. SII has a robust financial profile with minimal debt and strong cash flows. SII reported total operating income (TOI) of Rs. 25,634 Cr with PAT of Rs. 10,849 Cr in FY22 and has a networth base of Rs. 32,689 Cr. as on March 31, 2022.
Acuité believes that PFL is of strategic relevance to the Group given the size of the investment made by the group and shared name. Through this acquisition, the Group has diversified its business by gaining strong presence in retail lending, housing finance and general insurance segments.

Strong capitalization & improved financial flexibility
PFL’s capitalisation levels have considerably improved at the consolidated level post capital infusion of Rs.3,456 Cr. on a preferential basis in FY2022 as depicted by networth of Rs. 6058 Cr. as on March 31, 2022 as against Rs. 2,194 Cr. as on March 31, 2021. As a result, PFL’s Capital Adequacy Ratio (CAR), on a standalone basis, rose sharply to 49.10 percent as on March 31, 2022 from 20.30 percent as on March 31, 2021 and the gearing reduced to 1.18 times as on March 31, 2022 from 4.8 times as on March 31,2021. PFL witnessed improvement in earning profile in FY2022 on a consolidated basis as reflected in PAT of Rs. 375.41 Cr. as compared to losses of Rs. 558.96 Cr. for FY2021. Resultantly, ROAA improved to 2.57 percent as against (3.98 percent) as on March 31,2021. Net Interest Income (NII) improved to Rs. 1194.32 Cr. for FY2022 from Rs.1065 Cr. for FY2021. For Q1FY23, PAT stood at Rs. 141 Cr up 18.5% QoQ and up 118.3% YoY, which resulted in a RoA of 3.4 percent for the same period.
While Acuité takes cognizance of various structural and business transformation initiativesundertaken, PFL’s ability to grow its AUM in sustained manner while containing asset quality & profitability risks will remain key rating monitorables.

Competent management team
Post-acquisition of controlling ownership by RSHPL, there have been several changes in the management of PFL. Mr. Adar Poonawalla holds the position of Chairman and Nonexecutive Director of the ten-member Board that includes five non-executive independent directors. PFL’s senior management team is led by Mr. Abhay Bhutada, Managing Director, who is a seasoned finance professional with over 15 years of diversified experience in commercial and retail lending domain.  He has been instrumental in setting up the initial foray in retail lending business for the group.  PFL has inducted experienced professionals across functions, in line with the growth areas identified at group level. Mr. Sanjay Miranka (previously with Aditya Birla Finance) has joined as the CFO. The Group has also onboarded seasoned professionals with vast experience in financial services having worked at reputed financial institutions and banks to head critical functions like credit, business, treasury, risk, technology, analytics, operations, and HR.
Acuité believes PFL will continue to benefit from the expertise and experience of board and management team.

Established presence in retail financing
PFL commenced its operations in 1989 and over time built long and established presence in retail financing across 21 states in India through a branch network of 242 branches as on March 31, 2022. The consolidated AUM stood at Rs 16,579 Cr. as on March 31, 2022 as compared to Rs.14,225 Cr. as on March 31,2021. For Q1FY2023, the AUM further improved to Rs. 17,660 Cr. with the company disbursing Rs. 3,436 Cr in Q1FY23. The company’s established presence in the retail financing has helped it maintain overall healthy asset quality as reflected by Gross Stage 3 and Net Stage at 2.66 percent and 1.11 percent as on March 31, 2022 as compared to 3.7 percent and 1.2 percent respectively as on March 31, 2021. Further, GS3 and NS3 stood at 2.2 percent and 0.95 percent respectively as on June 30, 2022. This improvement in Gross Stage 3 was primarily driven by strong collection efforts with run down of legacy portfolio and superior asset quality of the newly originated book.
Acuité expects PFL to benefit from experience of operating a digital lending platform in Poonawalla Finance Private Limited (PFPL), Poonawalla Group’s entry vehicle in financial services business.
 

­Limited seasoning under revised product suit; relatively moderate scale of operations
PFL looks forward to build the granular portfolio under consumer and MSME finance, accordingly the product suite has been revised. This has resulted into discontinuation of certain existing product lines of erstwhile Magma like commercial vehicle loans and new car loans and addition of some new product offerings. PFL on a consolidated basis disbursed ~Rs. 9,494 Cr. during FY2022 and ~Rs. 3,436 Cr. in Q1FY2023. The consolidated AUM stood at Rs 16,579 Cr. as on March 31, 2022 as compared to Rs.14,225 Cr. as on March 31, 2021. For Q1FY2023, the AUM further improved to Rs. 17,660 Cr. Due to substantial growth in loan book in recent quarters the new portfolio generated has limited seasoning.