Buy PNB Housing Finance; target of Rs 1520: Motilal Oswal

Motilal Oswal 's research report on PNB Housing Finance

PNB Housing Finance (PNBHOUSI IN) reported a strong 59% PAT growth in FY18 with 50% growth in AUM YoY, ~40bp spread expansion and stable asset quality. Growth has been led by expanding branch count (up from 63 to 84 branches YoY) and higher share of in-house sourcing (up from 59% to 65% YoY). Also, the company continues to reduce geography-specific risks - the share of AUM coming from North India has reduced meaningfully from 52% to 32% over FY14-18. With smart treasury management, the company managed to expand spreads despite a tough interest rate environment. Almost all NCDs issued in FY18 were at a cost below 8%. Additionally, only 3% of secured NCDs will mature in FY19, thus minimizing refinancing risk in FY19. In addition, PNBHOUSI issued ~INR9b worth of ZCBs during the year.

Outlook

We introduce consolidated estimates for FY19-21E. PNBHOUSI incorporated a wholly-owned subsidiary in end-FY18 for sales and distribution. Consolidated numbers from FY19 onwards should be comparable with standalone numbers of FY18. Maintain a Buy rating with a TP of INR1,520 (3x FY20E BV).