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AUM declines sequentially; adequate liquidity
* PNB Housing Finance (PNBHF) disclosed some key details of the quarter gone by in an exchange release.
* The company ended the fiscal year with AUM of ~INR840b (-3% QoQ/-1% YoY). According to our calculations, disbursements during the quarter would have been INR35-40b (down 50-60% YoY). In our view, disbursements are likely to be muted due to (a) lower incremental demand post COVID-19, (b) scale-back in corporate lending and (c) high leverage.
* The company raised deposits of INR92b in FY20 (~INR15b in 4QFY20) – note that the share of deposits stood at 19% of total borrowings in 9MFY20 (+200bp QoQ). On an incremental basis, PNBHF is able to raise 1-3 year retail deposits at 7.5-7.6% (down 30-40bp over the past six months). Note that as of FY19, 82% of deposits were retail, thus adding to the granularity of the deposit portfolio.
* Margins and liquidity: The company ended the year with INR76b of liquidity on the balance sheet (ex-SLR investments). In addition, it has INR40b of undrawn lines from banks outstanding. Note that this was after net borrowing repayment of INR25b during the quarter. Loan spread is expected to be within the guided range of 2.1-2.15% for the year.
* PNBHF entered into an agreement for a USD75m ECB from Japan International Cooperation Agency (JICA) with USD25m co-financing from Citibank. The loan is for a five-year tenure and for providing affordable housing finance to low-income households.
Valuation and view
The past 4-6 quarters have been tough for PNBHF on both liability and asset sides. The company has not been able to raise adequate money from capital markets and relied largely on bank loans and securitization for incremental debt capital. High securitization volumes have also boosted earnings in FY20 due to upfront income recognition under Ind-AS. On the asset side, the company has witnessed slowing growth and an increase in the GNPL ratio (up 100bp to 1.45%). Recovery of stressed corporate accounts would now be delayed due to the impact of COVID-19 on the real estate sector. While on-balance sheet leverage has declined over the past four quarters, it is still high at 9x. The ability to raise equity capital will determine the near-to-medium term trajectory of the company. We cut our FY21-22 EPS estimates by 8-11% to factor in lower growth and higher credit costs. Note that our estimates do not factor in any capital raise. PNBHF is likely to deliver high-single-digit AUM CAGR with RoE of 12-14%. Maintain Neutral with a TP of INR190 (0.3x FY22E BVPS).
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