Buy PNB Housing Ltd For Target Rs.1,160 by Motilal Oswal Financial Services Ltd
Sustains all-round healthy performance!
Earnings in line; NIM expands marginally, while asset quality improves
* PNB Housing (PNBHF) delivered an all-round healthy performance wherein it exhibited 1) a healthy retail loan growth of ~17.5% YoY, 2) a minor expansion (~2bp) in NIM, 3) a continued improvement in asset quality, and 4) recoveries from its retail written-off pool, which have kept credit costs benign and resulted in provision write-backs for the third consecutive quarter. PNBHF’s 3QFY25 PAT grew 23% YoY to ~INR4.7b (6% beat).
* NII rose ~16% YoY to ~INR6.9b (in line). Opex rose ~21% YoY to ~INR2.1b. PPOP grew ~16% YoY to INR5.8b (in line). Credit costs net of recoveries from the written-off pool resulted in a write-back of INR360m. This translated into net credit costs of -19bp (PQ: -27bp).
* PNBHF is confident of scaling its retail loan book to ~INR1t by FY27, with affordable and emerging forming ~15% and ~25% of the loan mix, respectively. The company expects robust mortgage demand to sustain over the next few years, and the revival of the PMAY scheme is expected to further support growth in its affordable and emerging market segments.
* Management indicated that repo rate cuts are unlikely to impact NIMs. However, temporary NIM compression may arise from competitive pressures, which can be effectively managed. The company guided NIM improvement driven by a better product mix. Management expects NIM to reach ~4% by FY27. We model NIMs of 4.1%/4.3% for FY26/FY27.
* GNPA/NNPA stood at ~1.2%/0.8% and improved ~5bp each QoQ. Retail GNPA also improved ~5bp QoQ while Corporate GNPA continued to be NIL.
* We continue to believe in our thesis of a transformation at PNBHF and the management’s ability to deliver RoA improvement predicated on: 1) healthy retail loan CAGR of ~18%; 2) NIM improvement from FY26; and 3) benign credit costs from sustained recoveries from the written-off pool.
* We expect PNBHF to deliver a CAGR of 18%/23% in AUM/PAT over FY24- FY27 and ~2.6%/14% RoA/RoE in FY27. Reiterate BUY with a TP of INR1,160 (based on 1.5x Sep’26E BVPS).
Highlights from the management commentary
* The company guided credit costs of ~18bp in Prime, ~22-23bp in Emerging, and ~30bp in Affordable, resulting in blended credit costs of ~25bp. Management expects provision write-backs to continue over the next few quarters, which will keep credit costs benign in FY26 as well.
* The company shared that it expects to resume sanctions/disbursements in its Corporate segment from 4QFY25 itself.
* PNBHF plans to open ~50 branches in 4QFY25. This includes an addition to ~40 branches in affordable housing, which will take the total affordable branch count to 200. Management guided that the company’s affordable loan book will scale up to ~INR50b by Mar’25.
Valuation and view
* PNBHF’s execution in 9MFY25 has been in line with its guided playbook, and we believe that it will continue to move forward with the strength to deliver on its articulated guidance on loan growth, asset quality, credit costs, and improvement in NIM.
* The stock trades at 1.1x FY27E P/BV, and the risk-reward is favorable for a rerating in the valuation multiple as investors gain higher confidence in the company’s sustained execution in retail (across prime, emerging, and affordable segments). Reiterate BUY with a TP of INR1,160 (based on 1.5x Sep’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 asset quality deterioration.
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