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PNB Housing Finance (PNB HF) reported a PAT growth of 24%/9% YoY/QoQ which was +5% above JMFe, leading to annualized RoA of 2.7%. The beat was mainly led by higher recoveries of ~INR 590mn from its written off pool and ~INR 700mn from a corporate loan account. NII grew 13%/1% YoY/QoQ, as NIMs declined -7bps QoQ while PPoP grew 16%/2% YoY/QoQ. Disbursements YoY growth slowed down to 12% (from 13% in Q1) which we believe may lead to a slower AUM growth over the near term. Loan assets grew 15%/3% YoY/QoQ led by strong growth in affordable/emerging segment (14%/6% QoQ). GS3 declined -2bps to 1.04%, however, seasoning of the portfolio led to a spike in 30+ DPD in its affordable segment. Though management expects recovery to continue for next 2-3 quarters (o/s recovery pool of INR 10bn) offering near term tailwinds, slippages from affordable book as portfolio seasons, is expected to drive credit costs slightly higher. The corporate loan disbursals coupled with revision in interest rates would likely offset any meaningful expansion in NIMs. However, current multiple of 1.1x FY27E P/B offers healthy upside in return for 2%+ RoAs. We maintain BUY with a target multiple of 1.4x FY27E BV entailing a TP of INR 1,150.

* Modest growth: Disbursements for the quarter grew +12% YoY/+20% QoQ to ~INR 60bn, driving AUM growth of +12% YoY/+2% QoQ, primarily led by retail assets (+17% YoY, +3% QoQ). Within retail, the affordable segment surged +121% YoY, +14% QoQ, emerging markets grew +21% YoY, +6% QoQ, and the prime segment grew +8% YoY, +1% QoQ. However, the corporate book continued to decline (-78% YoY, -59% QoQ), now representing ~0.4% of the total book. Management reiterated its retail book growth guidance of ~17-18% for FY26E. With a pick-up in corporate disbursements anticipated in 2HFY26, we forecast robust growth in loan assets of ~16% CAGR over FY25-27E, with a continued focus on scaling high-yielding segments like affordable and emerging markets.

* PAT beat led by higher recoveries: NII came in at INR 7.5bn (+13% YoY, +1% QoQ), with NIMs moderating by -7bps QoQ to 3.67%. Yields were down -4bps QoQ, while CoFs declined by - 7bps QoQ. NIM compression was mainly due to lower investment yields, while spreads remained largely stable (+3bps QoQ). FY26 NIM guidance was maintained at ~3.6-3.7%. PPoP stood at INR 6.5bn (+16% YoY, +2% QoQ), driven by opex growth of +7% YoY, +1% QoQ. A write-back of ~INR 590mn from recoveries in the retail (INR 340mn) and corporate (INR 250mn) write-offs pool led to a PAT of INR 5.8bn (+24% YoY, +9% QoQ, +5% JMFe). While the rising mix of affordable and emerging segments will support yields, decline in incremental yields from prime and emerging segments would keep NIMs largely range-bound at ~3.5% over FY26-27E.

* Steady asset quality; Recoveries continue: Asset quality remained stable, with GS3 improving by -2bps QoQ and NS3 flat at 1.04%/0.69%, respectively. Retail GNPL stood at 1.05% (-2bps QoQ), while corporate GNPL remained nil. PCR declined to 34.2% (-118bps QoQ). The overall 1+ DPD ratio was 2.5%. The affordable segment's 30+ DPD rose to 1.4% (vs. 0.9% in 1Q26), attributed to portfolio seasoning. The outstanding written-off pool stands at INR 10bn, with INR 6.75bn from corporate loans and the remainder from retail. Management expects continued recoveries from this over the next 2-3 quarters, with GNPA trending towards ~1% in the medium term. We forecast an average credit cost of ~20bps over FY26-27E.

* Valuation and view: We believe the current multiple of 1.1x FY27E P/B offers healthy upside in return for 2%+ RoAs. We maintain BUY with a target multiple of 1.4x FY27E BV entailing a TP of INR 1,150.

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