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Last Updated : Oct 26, 2016 05:03 PM IST | Source:

Analysts bullish on PNB Housing Fin IPO but should you subscribe

ICICI Securities recommends subscribing the issue. It says that at the IPO price band of Rs 750-775, the stock is available at a multiple of 2.5x FY16 ABV (post issue) at the upper end of the price band.

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Most analysts are bullish on second largest IPO of 2016, as it opens for  subscriptions on October 25. With PNB as parent company holding 51 percent stake, brokerage firms think PNB Housing Finance is an issue one should not miss out this season.  The remaining 49 percent stake is held by Destimoney Enterprises, which is owned by Carlyle Group’s Quality Investments Holdings. The company offers a comprehensive range of home finance products and services including
retail and non-housing loans.

PNB Housing Finance is aiming to raise Rs 3000 crore from the issue priced at Rs 750-775. The IPO which will close for subscription on October 27.

ICICI Securities recommends subscribing the issue. It says that at the IPO price band of Rs 750-775, the stock is available at a multiple of 2.5x FY16 ABV (post issue) at the upper end of the price band. "Given robust advances growth, best asset quality among peers and foray in the affordable category housing finance segment, the future outlook remains favourable," it says in a note.

It adds that an improvement in efficiency will remain a key catalyst for an expansion in return ratios.


Centrum also advises to subscribe the issue stating that valuations appear reasonably attractive, compared to peers with largely similar return on assets (RoAs) such as LIC Housing Finance, GIC Housing Finance, Can Finance Homes. Considering the healthy financials, top-quartile return ratios and overall growth in the housing finance sector backed by government’s  housing for all and smart cities programme, it believes PNB Housing Finance offers an ideal investment opportunity.

However, it adds that higher competition may affect business growth along with banks providing housing loans, increase in slippages from the high-risk self employed class or the high ticket-size developer loans could deteriorate asset quality.

Ajcon Global suggests subscribing to the issue considering its credentials against existing listed peers.

SPA recommends subscribing to the issue for medium to long term gains as deleveraging due to capital raising and cost optimisation should help PNBHFL to improve its return on asset. At the upper end of price band, the stock will trade at 2.5x FY16, which is at discount to its immediate peer, Can Fin Homes, it adds.

"While PNB Housing Finance has gained market share, it lags peers on profitability. Key reason for its low profitability is its high Cost-to Income (CI) ratio of 30 percent compared to 8 percent for HDFC and 4 percent for LIC Housing," it adds.

At price band of Rs 770-775, price to book multiple will turn out to be 2.3-2.45 on post issue book value of Rs 316/share of company. Looking at the strong growth prospects of housing finance sector issue looks decent on long term perspective, says Hem Securities and hence it recommends subscribe on issue for long term.

Nirmal Bang also suggests to subscribe the issue impressed with strong balance sheet growth and profitability. It believes taht the return ratios will further improve. Between FY12-16, its net interest income grew at CAGR of 54.7 percent while return on equity was 17.6 percent for FY16.

The finance company aims to utilise proceeds of the issue to augment capital base to meet future capital requirements and for general corporate purpose. As of June 30, 2016, its' Tier I capital is 8.40 percent of the risk weighted assets. Accordingly, a portion of the funds raised will be used for improving capital base for business and growth including towards onwards lending, payment of operating expenditure, purchase of assets and repayment of outstanding loans and interest.

Its loan portfolio constituted 98.73 percent of its asset under management (AUM) as of June 30, 2016. It entered into a securitisation transaction worth Rs 2440 crore in August this year.

As of June 30, 2016 and as of March 31, 2016, 2015 and 2014, its provisioning coverage ratio (the proportion of gross NPAs for which provisions had been made) was 30.77 percent 36.25 percent, 66.82 percent and 51.47 percent respectively.

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First Published on Oct 25, 2016 09:05 am
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