PNB Housing Finance Limited (NSE: PNBHOUSING) | Research Summary

Summary 

With a rebound in the Indian economy post-pandemic restrictions, PNB Housing Finance has experienced growth in its financials. The company’s recent earnings report reflects strong profits, margins, and a sound capital position. Also, cost management reflects operational efficiency, while the management remains optimistic in terms of improving asset quality. From a valuation perspective, among peers, PNB Housing can be considered a strong long-term bet based on its current P/E and P/B ratios. Therefore, investors with buying the dips strategy can build a position in the stock as it is hovering near its 52-week low. 

Overview 

PNB Housing Finance Limited (NSE: PNBHOUSING), promoted by Punjab National Bank (PNB), is a Midcap company that operates in the NBFC sector. Incorporated under the Companies Act, 1956, the company commenced its operations in November 1988. Later on, in November 2016, PNB Housing launched its Initial Public Offering (IPO) of equity shares, which are now listed on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). 

With a market capitalization of INR 6,269.05 crore, PNB Housing operates with a strong network of branches in India and provides loans and deposits to customers. As of June 30, 2022, the company has total shares outstanding of 16.86 crores and 105 branches with a presence in 73 cities. 

Recent Share Price Insights 

• With the current price of INR 390.90 as of September 13, 2022, PNB Housing is hovering near the low of its 52-week range of INR 311.45 – INR 675.95. 

• In the last 5 years, only 3.04% of trading sessions of PNB Housing experienced intraday declines of more than 5%. 

• The stock recorded a 3-year negative return of 41.39% as compared to the Nifty Midcap 100 return of 101.7% and the Nifty Financial Services return of 47.99%. 

Financial Snapshot 

In July, PNB Housing reported its financial results for the quarter that ended June 30, 2022. The company recorded Net interest income (NII) of INR 370 crore, down 33% YoY and 2% sequentially on the reduced corporate book. Net interest margin (NIM) came in at 2.40%, down 80 bps YoY but up 10 bps QoQ. Fee and commission income was INR 110.06 crore, significantly up on a YoY basis but down 6.8% sequentially. 

Net profit after tax declined 3% YoY but rose 39% QoQ to INR 235 crore. Operating expenditure came in at INR 121 crore, up 5% YoY but down 3% QoQ. Annualized ROE and ROA stood at 9.3% and 1.47%, respectively.  

As of June 30, 2022, net non-performing assets (NPAs), as per IndAS, improved to 4.26% of the loan assets from 5.06% in the March quarter. Assets under management (AUM) of the company stood at INR 64,850 crore, while loan assets were INR 56,301 crore. The company’s Capital to Risk Asset Ratio (CRAR) was 23.9%, of which Tier I capital was 21.4% and Tier II was 2.5%.

Following quarterly results, encouragingly, PNB Housing Finance Managing Director & CEO commented, “the demand for real estate sector remains robust with 9-11% growth expected by ICRA in FY23. To leverage this opportunity, we continue to concentrate on the retail sector to accelerate growth…We continue to remain persistent towards improving its asset quality, which has led to a reduction in gross NPA by 23% QoQ to INR 3,639 crore in Q1FY23.” 

Factors to Consider 

• Rebound in the Indian economy post-pandemic fueled the financials of the company. 
• Credit growth momentum backed by rising retail loans is a plus. 
• Improved capital position and gearing, adequate provisions, and sound risk management indicate the progress of the company. 
• Cost management and digital transformation reflect operational efficiency 
• Relentless customer service aids in retaining clients 

Recent Highlights 

Recently, RBI has approved PNB Bank’s plan to infuse INR 500 crore in PNB Housing Finance to subscribe to PNB Housing’s proposed rights issue of up to INR 2,500 crore. This will reduce the bank’s holding below 30% but above 26% to retain the promoter status. 

Industry Analysis 

The Indian housing finance sector constitutes more than 80 players. It is dominated by some key participants such as HDFC, PNB Housing Finance Limited, Dewan Housing Finance, Indiabulls Housing Finance, and LIC Housing Finance, collectively commanding 78% of the total market share. With a huge untapped market for low-cost homes in India, the government has assigned INR 48,000 crore for affordable housing in 2022–2023 under PMAY (Pradhan Mantri Awas Yojana). As a result, the housing finance sector is expected to grow due to increased accessibility, rising urbanization, and government incentives. However, interest rates and inflation play a major role in this sector. With rising rates and inflation, potential borrowers remain at bay, and loan defaults rise.

As a result, the continuation of the trend is likely to hurt the sector in the coming period. Nevertheless, by 2040, the real estate market is projected to reach INR 65,000 crores, with the estimation of 13% of India’s GDP to be generated by the housing industry by 2025. 

Peer Comparison

In terms of market capitalization, LIC Housing ranks first followed by Can Fin Homes and PNB Housing. However, annual ROE fares better for the other two companies compared to PNB Housing. Nevertheless, from a valuation perspective, PNB Housing can be considered a long-term opportunity.