Buy PNB Housing Finance; target of Rs 1680: JM Financial

JM Financial's research report on PNB Housing Finance

PNB Housing Finance (PNBHF)’s operating performance remained strong in 2QFY18, with net profit up 51% YoY, driven by robust AUM growth of 47%. Disbursement growth came in at 45% YoY while the loan book increased 51%, driven by growth in the developer book (59% YoY/18% QoQ) and individual home loans (47% YoY/11% QoQ), while LAP book growth stood at 38% YoY/12% QoQ. Margins expanded 39bps YoY to 3.15% in 2QFY18, driven by a 94bps YoY decline in funding costs and a change in the loan mix towards developer book, LRD and Corporate Term Loan. PNBHF’s asset quality remained stable with gross NPLs of 0.34%, while its coverage ratio stood at 24% (vs. 32% in 2QFY17). With aggressive lending rates cuts across the industry, we expect some pressure on yields and margins going forward. With deeper penetration in existing markets and rapid geographic expansion into newer markets, we expect strong growth to continue.

Outlook
We forecast net profit CAGR of 39% over FY17-FY20E, led by strong loan growth and steady asset quality. We value the company at 3.4x Dec’19 BV, implying a Dec’18 TP of INR 1680. We have a BUY call on the stock. For all recommendations report, click here

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