Brokerages turn bullish on PNB Housing Finance after sharp stress clean-up in Q2

Analysts at Motilal Oswal penciled better loan growth outlook and lower credit costs to drive 4/9 percent increase in FY24/25 EPS estimates

Shares of PNB Housing Finance declined 2 percent to Rs 701 on October 25, despite a strong July-September quarter (Q2FY24) performance on all fronts. Brokerages have turned bullish on the counter on the lender’s sharp stress clean-up and the management guidance of declining cost of borrowings from hereon.

In the past one month, the stock of this housing financier has jumped 10 percent as against a 2 percent decline in the benchmark Sensex.

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Global brokerage firm Morgan Stanley shared an ‘overweight’ rating on the counter, with a target price of Rs 880. Analysts believe that PNB Housing’s balance sheet has strengthened after the state-owned lender used large corporate non-performing loan (NPL) recovery to write-off retail gross NPLs.

PNB Housing’s gross non-performing assets (GNPAs) slipped to 1.7 percent in Q2FY24 from 6.06 percent a year ago, while net NPA declined to 1.1 percent from 3.5 percent.

Analysts at Motilal Oswal upgraded rating on PNB Housing to ‘buy’ with a target price of Rs 950 per share. They said that the housing financier could see further improvement of retail asset quality in the second half of FY24 (H2FY24) and start FY25 on a clean slate if additional write-offs were taken.

That said, PNB Housing profit surged 46 percent year-on-year (YoY) to Rs 383 crore in Q2FY24, whereas revenue from operations registered a growth of 5.5 percent YoY to Rs 1,777 crore.

The rise in average cost borrowings hit net interest margins (NIMs) of PNB Housing in Q2FY24. NIMs were down 20 basis points (bps) YoY to 3.9 percent in Q2FY24.

However, the management has guided that cost of borrowings has peaked out and should decline from hereon. This, analysts at Motilal Oswal said, could translate into potential NIM expansion in the upcoming quarters.

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Total disbursements for the quarter surged 16.3 percent on-year, with the total loan book up 5.3 percent.

Going ahead, the management has retained its guidance for 17-18 percent YoY retail loan growth and 22 percent YoY growth in retail disbursements.

Analysts at Motilal Oswal penciled better loan growth outlook and lower credit costs to drive 4/9 percent increase in FY24/25 EPS estimates.

“We expect PNB Housing Finance to deliver compounded annual growth rate (CAGR) of 13/28 percent in AUM/PAT over FY23-26 and 2.4/12.4 percent RoA/RoE in FY26,” the brokerage firm added.