UBS bullish on PNB Housing turnaround story, sees 17% upside; stock gains

Prime loans make up 73 percent of the firm's loan book.

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26 Aug, 2025 12:21

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International brokerage UBS kicked off coverage on PNB Housing Finance shares on Friday, June 27, believing in the firm's turnaround story coupled with reasonable valuations.

The brokerage issued a 'buy' rating and a price target of Rs 1,300 per share, indicating a 17 percent upside. PNB Housing Finance is one of the largest housing finance companies (HFC) in India with a loan book of Rs 80,000 crore. While prime loans make up 73 percent of its loan book, the company is diversifying into the emerging and affordable loan segments, which UBS thinks are a better fit for the firm given its AA+ credit rating.

The brokerage added that expansion into these new segments could support a 16 percent AUM CAGR over FY25-27E, and forecast 40 percent of the book would be non-prime by FY27 vs 25 percent in FY25. "We expect this, in turn, to drive yield expansion, leading to a 13 percent EPS CAGR over FY25-27E. An increase in leverage could lead to a 13%+ ROE by FY28E," said the brokerage.

At 9.15 a.m., shares of the firm were quoting Rs 1,128.3 on the NSE, up 1.6 percent.

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Following the Reserve Bank of India's repo rate cut of one percentage point in the current cycle, UBS anticipate PNB Housing Finance's margin will come under pressure in FY26E. While the company has low exposure to repo-linked loans, new loan rates would have to be cut and MCLR (marginal cost of lending rate)-linked rate cuts would need to be passed on.

"We estimate an overall impact of 10 bps on loan yield in FY26, likely to be offset by a lower cost of funds. We also expect provisions to start inching up as a recovery from the wholesale and retail books has driven credit costs lower. We expect a steady state 30 bps credit cost from FY27E," added the brokerage.

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