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Business momentum remains slow; asset quality stable

* PNB Housing Finance (PNBHOUSI) reported 4QFY21 PAT of INR1.3b (v/s net loss of INR2.4b YoY; 54% miss). The miss was attributable to higher-thanexpected credit costs / opex of INR3.5b/INR1.4b (73%/38% above our est). FY21 PPoP was largely flat, while PAT was up 44% YoY to INR9.3b.

* We upgrade our EPS estimates for FY22E on account of lower credit costs – as we believe the bulk of the provisioning has already been upfronted. Maintain Neutral, with TP of INR400/share (0.6x FY23E BVPS).

AUM down 11% YoY; incremental CoF maintained sub of 7%

* Disbursements are up ~28%/45% on a sequential/YoY basis to INR41b. Note that the base itself was weak. AUM declined 4% QoQ / 11% YoY to INR74b. The AUM decline was partially due to higher repayments (rate up by 390bp QoQ / 785bp YoY to 35%).

* During the quarter, it recognized upfront assignment income of INR353m (flat QoQ).

* Calc. spreads improved ~7bp QoQ to 3.1%. The company is originating home loans at ~8.9% incrementally. Incremental CoF stands at 6.8%.

Proforma GNPL stable at 4.4%; stage 1/2 provisions at 2.2%

* Proforma GNPL was largely stable sequentially at 4.44%. The company wrote off INR500m in 4QFY21 (INR830m in FY21).

* Restructuring of INR13.86b/INR3.37b was undertaken in the retail/corporate lending book, of which INR2.5b/INR1.0b is classified under Stage 2 (the balance under Stage 1).

* Stage 1 and 2 PCR increased 40bp ~to 2.2% QoQ and YoY; Stage 3 PCR increased ~600bp QoQ / 900bp YoY to 45%. Note that PNBHOUSI’s Stage 1 and 2 PCR is among the best in the industry. The total provision buffer is up ~3x from pre-COVID levels to INR25b.

* The company resolved some corporate accounts and received INR18.8b in net receipts. Around 83% of the corporate book is current (i.e., 0dpd). Its exposure to the top 20 developers stood at INR82b.

Highlights from management commentary

* It targets RoA of 1.5–1.7% and RoE of ~15% over the next 1–2 years.

* 50–60% growth is expected in disbursements and single-digit growth in AUM in FY22. AUM growth would pick up in FY23.

Valuation and view

Over the past year, the company has consciously slowed its loan growth and focused on higher down-selling to address the issue of high leverage. Leverage has now fallen to levels of ~7x and the decline is likely to continue. From FY23, the company would be in a position to grow its loan book by 9–11% YoY. It has front-loaded most of the asset quality-related pains. Hence, we increase our FY22E EPS estimates by 17% to factor in lower provisions. The company should deliver 14–15% RoE in FY22E/FY23E; however, asset quality risks from the second wave of the pandemic persist. Maintain Neutral, with TP of INR400/share (0.6x FY23E BVPS).

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