HDFC Securities has included PNB Housing Finance in its Diwali stock picks for Samvat 2081, recommending a buy range of ₹893-991 and setting a target price of ₹1,160. The company is expected to benefit from strong retail loan growth, asset quality improvement, and continued write-backs over the coming quarters.
About the Company
PNB Housing Finance Limited is a registered housing finance company promoted by Punjab National Bank, which holds 28.1% of its share capital. The company offers a range of financial products, including individual home loans, retail loans against property, construction finance, and lease rental discounting. As of June 2024, PNB Housing operates through 303 branches, primarily in Tier 2 and Tier 3 cities, with a focus on the affordable housing segment.
Valuation and Recommendation
PNB Housing has shown a shift towards focusing on retail loans, which now account for 97% of its loan book, as of June 2024. The company’s loan book is expected to grow at an 18% CAGR over FY24-FY26, with net interest income (NII) and profit after tax (PAT) forecasted to grow at 16% and 15%, respectively, over the same period. HDFC Securities recommends buying the stock in the range of ₹893-991, with a target price of ₹1,160 (1.7x FY26E ABV) by next Diwali.
Key Financials (FY22-FY26E):
- Net Interest Income (NII): ₹1,758 crore (FY22) to ₹3,364 crore (FY26E)
- Pre-Provision Operating Profit (PPOP): ₹1,660 crore (FY22) to ₹2,821 crore (FY26E)
- Profit After Tax (PAT): ₹836 crore (FY22) to ₹2,011 crore (FY26E)
- Earnings Per Share (EPS): ₹49.6 (FY22) to ₹77.4 (FY26E)
- Return on Assets (RoA): 1.2% (FY22) to 2.2% (FY26E)
- Return on Equity (RoE): 8.9% (FY22) to 11.3% (FY26E)
Key Triggers
- Focus on Retail Loans: PNB Housing’s retail loan book now represents 97% of the total loan book, up from 90% in December 2022. The company disbursed ₹586 crore in affordable housing loans in Q1 FY25 and aims to further expand in this segment.
- Asset Quality Improvement: The company’s gross non-performing asset (GNPA) ratio has improved to 1.35% in September 2023, from 1.78% in the previous quarter. PNB Housing expects continued write-backs for the next 3-4 quarters, further improving its asset quality.
- Strong Capital Adequacy: The company raised ₹2,494 crore via a rights issue in May 2023, improving its capital adequacy ratio to 29.5% as of June 2024. Punjab National Bank and Carlyle Group, its major shareholders, participated in the rights issue.
Key Concerns
- Regulatory Changes: Any unfavorable changes in rules or policies by the RBI, NHB, or government ministries could negatively impact PNB Housing’s earnings outlook.
- Competitive Pressures: The housing finance sector faces stiff competition from small finance banks, commercial banks, and other housing finance companies (HFCs). These competitive pressures could limit loan growth and affect net interest margins (NIMs).
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from HDFC Securities and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
