Stable quarter; Moratorium rate declining
* PNBHOUSI reported 1QFY21 PAT of INR2.6b (v/s est. of INR600m). The beat was driven by stronger PPoP and significantly lower credit cost.
* Moratorium rate on the loan book declined to 39% in Phase 2 from 56% in Phase 1. AUM remained sequentially stable at INR835b. Given the high leverage, we expect the company to continue to run down its balance sheet until it raises fresh equity capital. Maintain Neutral, with TP of INR210.
AUM stable; NIMs improve sequentially
* As disbursements were negligible, AUM remained sequentially unchanged at INR835b. The company did not sell down any loans in the quarter; hence, upfront assignment income was nil v/s INR1.2b YoY.
* While yield on loans was stable at 10.6%, cost of funds declined 30bp YoY, leading to a similar improvement in spreads to 2.6%. Cost of funds is likely to further decline due to recent MCLR cuts by banks.
Gross Stage 3 stable; Moratorium rate declines
* The GS3 ratio remained stable QoQ at 2.76%. While the company kept Stage 1 and 2 ECL provisions stable, it increased Stage 3 PCR from 36% to 40% QoQ.
* The share of moratorium granted to retail customers declined from 49% to 29% QoQ, while that for the overall book declined from 56% to 39% QoQ.
* Collection efficiency stood at 96–97% during the quarter and was largely stable each month. This comprises non-moratorium customers only.
INR59b liquidity on the balance sheet; Opex declines sharply
* Liquidity on the balance sheet stood at INR71b, i.e., 11% of borrowings.
* The share of capital market borrowings (NCDs + CPs) declined to 22% from 32%. The company raised INR22.5b from NHB, the share of which now stands at 10% of total borrowings.
* Opex declined ~25% both QoQ and YoY. Management guided to 5–10% YoY reduction in FY21.
Highlights from management commentary
* Target INR130b retail lending disbursements in FY21. No fresh corporate sanctions would be granted in FY21.
* For its stressed IPL, the company sold one parcel of land and received INR250m earnest money. The developer paid an additional INR250m in July 2020. The principal outstanding is now at INR690m from INR1.01b QoQ.
Valuation and view
Over the past year, the key challenge for the company has been its high leverage. This has resulted in the running down of the balance sheet. In the current environment, this makes PNBHOUSI even more vulnerable to asset quality shocks. While the recent improvement in NIM and reduction in opex is encouraging, we wait and see the sustainability of the same. Maintain Neutral, with TP of INR210 (0.4x FY22E BVPS).
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