Buy PNB Housing Finance Ltd For Target Rs. 1,150 By JM Financial Services
Steady Quarter; Recoveries to continue over FY26
PNB Housing Finance (PNBHF) delivered a PAT beat of +8% over our estimates at INR 5.5bn (+25% YoY, +14% QoQ) leading to RoA/RoE of 2.8%/13% during the quarter driven mainly by recoveries from its retail written-off pool. NII came in at INR 7.3bn (+17% YoY, +5% QoQ) as NIMs remained largely stable QoQ at 3.75% (+5bps QoQ). PPoP stood at INR 6.5bn (+14% YoY, +12% QoQ) with opex growth +19% YoY, +3% QoQ. There was a provision write-back of INR 648mn majorly on account of recoveries from retail write-offs pool. The management expects the recovery to continue for next few quarters as it still has an outstanding write-offs pool of INR ~10bn in corporate book and INR ~4bn in retail book. AUM grew +13% YoY, +6% QoQ led by strong growth in retail housing loans (+18% YoY, +5.0% QoQ). Within retail, affordable segment grew +183% YoY, +32% QoQ, emerging markets segment grew +21% YoY, +7% QoQ and prime segment grew +12% YoY, +4% QoQ. Corporate book continued to rundown (-53% YoY, -22% QoQ). Asset quality metrics continued to improve as GS3/NS3 both declined -11bps QoQ to 1.08%/0.69%. With recoveries expected to continue from the balance write-off pool (~INR 14bn), PNBHF’s credit costs are likely to remain low for the near term. Over the medium term, steady state credit costs are estimated at ~20bps. We believe that i) strong growth trajectory led by affordable and emerging markets and corporate disbursements ii) steady branch expansion, and iii) consistent recoveries from its write-off pool while maintaining asset quality would aid in healthy avg.RoA of 2.5% over FY25-27E. We maintain BUY on the stock valuing the company at 1.4x FY27E BV entailing a TP of INR 1,150.
* Strong AUM growth led by retail HL: Disbursements growth during the quarter was robust at +27% QoQ, +23% YoY at INR 68.5bn. AUM growth stood at +13% YoY, +5% QoQ driven mainly by retail assets which grew +18% YoY, +6% QoQ, while corporate book declined by -53% YoY/ -22% QoQ. Within retail, affordable segment grew +183% YoY, +32% QoQ, emerging markets segment grew +21% YoY, +7% QoQ and prime segment grew +12% YoY, +4% QoQ. Mgmt reiterated its 18% retail book growth guidance and to reach INR 1trln of retail loan book by FY27 out of which INR 150bn would be from affordable segment, 350bn emerging segment and balance from prime. With resumption in corporate disbursements in FY26, we believe that the growth concern for the company is behind and we expect the company to deliver healthy AUM CAGR of ~18% over FY25-27E. Management also plans to add 150 more branches in next 2 years which should aid in higher growth especially from emerging and affordable segments.
* In-line operational performance; Retail recoveries lead PAT beat: NII came in at INR 7.3bn (+17% YoY, +5 % QoQ) as NIMs remained largely steady at 3.75% (+5bps QoQ). Yields were down -9bps QoQ to 10.03% while CoFs were largely stable at 7.8% PPoP stood at INR 6.5bn (+14% YoY, +12% QoQ) with opex growth +19% YoY, +3% QoQ. There was a write-back of INR 648mn majorly on account of recoveries worth INR 490mn from retail write-offs pool which led to a PAT of INR 5.5bn (25.3% YoY, +13.9% QoQ, +8% JMFe). We believe that shift towards high-yielding affordable and emerging markets and moving the book from super-prime and HNIs to prime and mass-affluent customers; will be offset by low yield corporate loan growth and thus would aid in steady margins in FY26. We estimate PAT to grow at 15% CAGR over FY25-27E.
* Asset quality improves sequentially; Recoveries continue: Asset quality metrics continued to improve as GS3/NS3 both declined -11bps QoQ to 1.08%/0.69%. Retail GNPL stood at 1.09% (-12bps QoQ) while corporate GNPL stands nil. PCR stood at 36.0% (+277bps QoQ). PNBHF recovered INR 490mn during the quarter from its retail book write-off pool taking total recoveries to INR 3.4bn during FY25 (INR 1.8bn from retail and INR 1.6bn from corporate). The company’s outstanding recovery pool stands at INR 10bn (from corporate loans) while outstanding for retail book write-offs stands at INR 4bn. Stage-2 assets declined 95bps QoQ as one corporate account which slipped into stage-2 in previous quarter was rolled back to stage-1. Management expects recoveries to continue over FY26E and guided for 20-25bps credit costs for FY27E.
* Valuation and view: We believe that i) strong growth trajectory led by affordable and emerging markets and corporate disbursements ii) steady branch expansion, and iii) consistent recoveries from its write-off pool while maintaining asset quality would aid in healthy avg.RoA of 2.5% over FY25-27E. We maintain BUY on the stock valuing the company at 1.4x FY27E BV entailing a TP of INR 1,150.
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SEBI Registration Number is INM000010361
