Buy PNB Housing Ltd for the Target Rs 1,390 by Motilal Oswal Financial Services Ltd
On track for stronger loan growth; NIM to expand from 2HFY27
* PNB Housing’s (PNBHF) 1QFY27 PAT grew 4% YoY to ~INR5.6b (in line). NII rose ~7% YoY to ~INR8b (in line). Other income grew ~25% YoY to ~INR1.3b (~13% higher than estimate). Opex rose ~10% YoY to ~INR2.4b (in line).
* PPOP grew ~9% YoY to INR6.9b (in line). Credit costs (net of recoveries) resulted in a provision writeback of INR291m (vs est. writeback of INR529m). This resulted in net credit costs of -13bp (PQ: -83bp and PY: - 29bp).
* PNBHF’s NIMs moderated ~19bp QoQ, primarily due to higher leverage and moderation in asset yields. The reported decline was partly due to the annualization benefit in 4QFY26, wherein NIMs were supported by a shorter quarter and monthly convention-based calculation, resulting in a ~7bp impact. Adjusting for this, the underlying NIM contraction was 12bp.
* PNBHF is transitioning toward a higher-growth and higher-yielding business mix, with affordable and emerging housing segments serving as key pillars of expansion. The company’s focus on building a stronger franchise across these segments, coupled with expanding margins and resilient asset quality, provides visibility on sustainable performance. The favorable portfolio mix and operating efficiencies are expected to support a gradual recovery in profitability, enabling the company to sustain RoA in the ~2.3%-2.4% range over the medium term.
* We estimate PNBHF to deliver a CAGR of 21%/13% in loans/PAT over FY26- 28E and RoA/RoE of ~2.3%/13% in FY28E. Reiterate BUY with a TP of INR1,390 (based on 1.5x FY28E BVPS).
NIMs moderate; improving portfolio mix to drive margin recovery
* Reported NIM in 1QFY27 contracted ~19bp QoQ to 3.5% due to an increase in leverage and the true-up of 4QFY26 NIM. However, adjusted NIMs contracted ~12bp QoQ.
* Portfolio CoB was stable QoQ at 7.36%. Yields were also stable QoQ at 9.48%. We expect NIMs to contract to ~3.6% in FY27 and gradually improve to ~3.8% in FY28.
* The moderation in asset yields was largely driven by competitive intensity in the prime housing segment, although this was partly mitigated by a favorable portfolio and customer mix shift towards non-home loans and self-employed borrowers. We expect a gradual margin expansion from 2HFY27, supported by improving incremental yields, a higher mix of affordable, emerging and developer finance businesses, and lower funding costs
Valuation and view
* PNBHF is expected to maintain a healthy growth trajectory, driven by sustained momentum in affordable and emerging housing segments, along with renewed growth opportunities in the prime segment. The evolving business mix, coupled with improving yields, is expected to support gradual margin recovery over the medium term.
* PNBHF currently trades at 1.4x FY28E P/BV. We estimate PNBHF to deliver a CAGR of 21%/13% in loans/PAT over FY26-28 and RoA/RoE of ~2.3%/13% in FY28. Reiterate BUY with a TP of INR1,390 (based on 1.5x FY28E BVPS).
* Key risks:
a) limited NIM expansion in FY27 due to high competitive intensity in the mortgage segment
b) asset quality deterioration and elevated credit costs arising from seasoning in the affordable, emerging, and developer finance portfolios.
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