IGI Logo

Credit cost guidance lowered for FY24-FY26

PNB Housing (PNBHF)’s 3QFY24 PAT grew 26% YoY but declined 12% QoQ to ~INR3.4b (~15% miss) due to NIM (excluding one-offs) compression of ~20bp QoQ. Management attributed this to a combination of factors such as: 1) corporate book decline, b) loan book retention to stem BT-OUTs, and c) competitive dynamics resulting in lending at lower rates in select pockets.

NII (excluding one-offs) declined ~1% YoY and 3% QoQ to ~INR6.2b due to a gradual shift in the mix towards retail. However, reported NII declined ~19% YoY and ~10% QoQ to INR 5.95b (11% miss). Reported PPOP declined 26% YoY to INR5b (14% miss).

PNBHF’s 3QFY24 disbursements grew 21% YoY but declined ~1% QoQ to ~INR41.3b. Total loan book grew ~7% YoY/ 2.4% QoQ to ~INR623b. However, retail loans grew 13% YoY. We estimate a retail loan growth of ~14% in FY24. ? Management shared that it will look to improve yields by catering to the Prime, Roshni and Emerging Market customer verticals. It further targets to bring down its CoB by: 1) engaging with banks for lower spreads on MCLR loans, 2) effectively tapping the debt markets backed by potential credit rating upgrades from other CRAs, and 3) tapping into NHB borrowings. PNBHF also lowered its credit cost guidance to ~30-35bp for FY24/FY25/FY26.

While 3QFY24 performance was indeed below expectations, we continue to believe in our thesis of a transformation in this franchise and management’s ability to deliver an improvement in the RoA profile predicated on: a) visibility of a healthy retail loan growth trajectory from FY25 onwards, b) NIM improvement through levers on both yields and CoB, and c) normalization to steady-state credit cost of ~35bp. Recoveries from the written-off loan pool (if executed well) can further support improvement in profitability.

 We cut our FY24 PAT estimate by ~5% to factor in the YTD performance and NIM compression. We expect PNBHF to deliver a CAGR of 18%/28% in AUM/PAT over FY24-FY26 and ~2.5%/13.5% RoA/RoE in FY26. Reiterate BUY with an unchanged TP of INR1,025 (based on 1.4x FY26E BVPS).

Management has its task cut out but is equipped to deliver; Reiterate BUY

PNBHF has levers for NIM improvement through product diversification and a potential decline in borrowing costs. Asset quality improvement has made it eligible for NHB borrowings, and a potential credit rating upgrade from other CRAs will provide it even better access to primary debt markets.

The company trades at 1.2x FY26E P/BV, and we believe that risk-reward is favorable for a re-rating in the valuation multiple as investors re-gain confidence in the company’s sustained execution in retail (both prime and affordable). Maintain BUY with an unchanged TP of INR1025 (based on 1.4x Mar’26E BVPS). Key risks: a) inability to drive NIM expansion amid aggressive competition in mortgages, and b) subsequent seasoning in the affordable loan book leading to an asset quality deterioration.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412