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PNB Housing Finance (PNB HF) delivered a PAT growth of +23%/-3% YoY/QoQ leading to RoA of 2.6%. PAT was above 2% JMFe during the quarter, driven mainly by recoveries from its corporate written-off pool. AUM grew +13%/+2% YoY/QoQ led by strong growth in affordable segment which grew +13% QoQ while emerging and prime both grew ~2% QoQ. NII grew +16%/+2% YoY/QoQ, on account of largely steady NIMs (-1bps QoQ). Asset quality metrics continued to improve as GS3 declined -2bps to 1.06%.There was a provision write-back of INR 562mn majorly on account of recoveries from retail write-offs pool. Management expects recovery to continue for next 4-5 quarters as it still has an outstanding write-offs pool of INR ~7/4bn in corporate/retail book which should lead to negative credit cost for next 4-5 quarters. We believe that i) strong growth trajectory led by affordable, 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 an unchanged multiple of 1.4x FY27E BV entailing a TP of INR 1,210.

* Modest growth: Disbursements during the quarter grew +13% YoY, -27% QoQ, at INR 49.8bn which led to AUM growth of +13% YoY, +2% QoQ driven mainly by retail assets which grew +18% YoY, +3% QoQ. Within retail, affordable segment grew +143% YoY, +13% QoQ, emerging markets segment grew +20% YoY, +2% QoQ and prime segment grew +10% YoY, +2% QoQ. Corporate book declined -56% YoY, -16% QoQ. Mgmt reiterated its 18% retail book growth guidance with ~9% growth in prime segment. With resumption in corporate disbursements in FY26, we expect healthy AUM growth of ~18% CAGR over FY25-27E. Company reclassified 20 branches from prime to emerging markets. Further, management guided on continued focus on scaling its high yielding areas such as affordable and emerging markets segments.

* In-line operational performance; Recoveries lead PAT beat: NII came in at INR 7.5bn (+16% YoY, +3 % QoQ) as NIMs remained largely stable at 3.74% (-1bps QoQ). Yields were down 4bps QoQ to 10% while CoFs declined by -8bps QoQ. FY26 NIM guidance increased to 3.7% (vs earlier guided 3.5%-3.6%). The company also reduced its PLR rates by 10bps on 1Jul’25. PPoP stood at INR 6.3bn (+17% YoY, -2% QoQ) with opex growth +12% YoY, +2% QoQ. There was a write-back of INR 562mn majorly on account of recoveries worth INR 570mn from write-offs pool which led to a PAT of INR 5.3bn (+23.3% YoY, -3.1% QoQ, +2% JMFe). Company aims to improve margin by increasing mix of Affordable and Emerging segment. We believe that shift towards high-yielding affordable and emerging markets will lead margins to improve in FY27. We estimate PAT to grow at 15% CAGR over FY25-27E.

* Steady asset quality; Recoveries continue: Asset quality remained largely steady as GS3 declined -2bps QoQ and NS3 remained flat QoQ to 1.06%/0.69% respectively. Retail GNPL stood at 1.07% (-2bps QoQ) while corporate GNPL stands nil. PCR stood at 35.4% (-64bps QoQ). PNBHF recovered INR 400mn during the quarter from its retail book write off pool and INR 170mn from corporate write off. The company’s outstanding recovery pool stands at INR 7bn (from corporate loans) while outstanding for retail book write-offs stands at INR 4bn. Stage-2 assets remained flat QoQ at 2.4%. 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, 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 an unchanged multiple of 1.4x FY27E BV entailing a TP of INR 1,210.

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