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In-line quarter; New CEO appointment expected soon

Reported NIM dips ~7bp QoQ; asset quality stable

PNB Housing (PNBHF) delivered a broadly in-line performance in 2QFY26, marked by 1) healthy retail loan growth of ~17% YoY, 2) NIM compression of 7bp QoQ to 3.67%, following a ~10bp PLR cut taken by the company and lower investment yields in the quarter, 3) minor improvement in overall asset quality, even as the 30+ and 90+ dpd in the affordable segment inched up due to portfolio seasoning, and 4) sustained recoveries from its retail and corporate written-off pool, resulting in continued provision write-backs.

* PNBHF’s 2QFY26 PAT grew 24% YoY to ~INR5.8b (~7% beat). PAT in 1HFY26 grew 24% YoY, and we expect its PAT to grow 14% YoY in 2H. The beat on PAT was primarily due to ECL release from the foreclosure of a standard corporate account. Adjusted for this, earnings would have been in line.

* PNBHF’s NII rose ~13% YoY to ~INR7.5b (in line). Other income grew 14% YoY to INR1.1b. Opex rose ~7% YoY/1% QoQ to ~INR2.2b (in line). PPOP grew ~16% YoY to INR6.5b (in line).

* Credit costs, net of recoveries, resulted in a write-back of ~ INR1.1b (vs. estimated write-backs of INR545m), which led to net credit costs of -57bp (PQ: -30bp and PY: -27bp). There was an ECL release of ~INR700m from the foreclosure of a corporate account.

* The company shared that the Board-led CEO selection process is underway, with formal disclosure expected soon. In the interim, the current senior leadership team has ensured seamless business continuity and steady performance. Management reiterated that the company’s core mortgage strategy remains firmly in place, with no significant strategic changes expected under the new CEO.

* PNBHF is steadily shifting towards higher-yielding products by moderating growth in the prime segment and intensifying focus on affordable and emerging segments. However, the management remains cognizant of a potential uptick in delinquencies as the company deepens its presence in the informal and self-employed customer segment.

* Total GNPA/NNPA stood at ~1.04%/0.7% (% of loan assets) and was largely stable QoQ. Retail GNPA was also broadly stable QoQ at 1.05%, while Corporate GNPA remained NIL.

* We continue to believe in the company’s ability to drive profitability improvement, supported by: 1) a healthy retail loan CAGR of 18%; 2) NIM expansion from FY27 onwards; and 3) benign credit costs on the back of sustained recoveries from the written-off pool. We expect PNBHF to resume corporate disbursements in 2H, which will also provide some support to yields and NIM. We model PNBHF to deliver a CAGR of 18%/16% in loans/PAT over FY25-28E and RoA/RoE of ~2.5%/13.5% in FY28. We reiterate our BUY rating with a TP of INR1,080 (based on 1.2x Sep’27E BVPS).

Highlights from the management commentary

* The company continues to strengthen its physical footprint and plans to add 30- 40 new branches annually, primarily across high-potential Tier 2 and 3 locations. It targets scaling up to 240 branches in the affordable segment by end-FY26.

* PNBHF has revamped its corporate credit policies to emphasize calibrated, lowrisk lending and expects selective disbursements in 3Q/4QFY26, with ticket sizes in the INR1.5-2b range.

* With the rollout of PMAY 2.0 underway, the company anticipates increased participation from informal customers (can go up to 35-40%) and self-employed borrowers (can go up to 45-50%) in its affordable housing segment.

Valuation and view

* PNBHF delivered an in-line performance in 2QFY26, although earnings were a beat primarily due to the ECL release of ~INR700m from the foreclosure of a standard corporate account. Disbursements were marginally soft, impacted by slower growth in the prime segment, while NIM moderated during the quarter owing to lower investment yields. Asset quality was stable, and sustained recoveries from the written-off pool resulted in write-backs for the sixth consecutive quarter.

* PNBHF is focused on maintaining profitability through disciplined margin management, driven by a strategic shift toward higher-yielding affordable and emerging housing segments, coupled with a cautious resumption of corporate disbursements. Its commitment to controlled growth and prudent asset quality management positions it favorably for sustained execution.

* The stock trades at 1.1x FY27E P/BV. We believe that the franchise has its inherent strengths, but the Board will need to instill greater investor confidence by appointing a suitable successor who closely aligns with the articulated strategy of the company. Reiterate BUY with a TP of INR1,080 (based on 1.2x Sep’27E BVPS).

* Key risks: 1) the inability to drive NIM expansion in FY27 amid aggressive competition in mortgages, 2) subsequent seasoning in the affordable/emerging loan book leading to asset quality deterioration and elevated credit costs, and 3) delay or challenges in appointing a suitable successor for the CEO position.

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