Buy PNB Housing Finance; target of Rs 1025: Motilal Oswal

Motilal Oswal's research report on PNB Housing Finance

Over the past two years, PNBHF has successfully transformed its business model into retail (both prime and affordable verticals) and has reduced its corporate loan book to ~4% of the AUM mix. In Apr’23, PNBHF completed its rights issue of ~INR25b, which has brought in confidence capital and has strengthened its case for a credit rating upgrade from credit rating agencies (CRAs). India Ratings recently upgraded PNBHF to AA+. PNBHF has set up an affordable housing (AH) vertical with exclusive sales, underwriting and collections. It has already crossed 100 AH branches in Nov’23 and plans to scale up to ~160 AH branches by Mar’24. In Dec’23, the AH vertical’s loan book surpassed ~INR10b, and we expect it to rise to ~INR70b and form ~8% of retail loans by Mar’26. With prime, affordable housing and the corporate segment resuming their growth trajectories, we estimate PNBHF to deliver a CAGR of ~18% in loans over FY24-FY26. The NIM expansion is expected to be driven by improvements in yields (through better product mix) and a potential decline in borrowing costs. In FY24, it has received a sanction from the NHB, which lends to HFCs at a rate that is at least 200-220bp lower than that of other borrowing instruments.

Outlook

We expect PNBHF to deliver a PAT CAGR of ~25% over FY24-26 and RoA/RoE of 2.5%/14% in FY26. We have a BUY rating and a TP of INR 1,025 (based on 1.4x FY26E P/BV).