Buy PNB Housing Finance; target of Rs 1750: Motilal Oswal

Motilal Oswal is bullish on PNB Housing Finance has recommended buy rating on the stock with a target price of Rs 1750 in its research report dated October 25, 2017.

October 27, 2017 / 17:37 IST

26 Aug, 2025 12:21

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Motilal Oswal's research report on PNB Housing Finance

PNB Housing Finance’s (PNBHF) 2QFY18 PAT grew robustly by 51% YoY to INR2.08b, led by its strong AUM growth, YoY improvement in margins and lower C/I ratio (albeit off a high base). Disbursements grew 45% YoY to INR74b. While this is certainly a very strong performance, it was a tad lower than disbursements in 1QFY18, suggesting some impact of RERA, and possibly GST. Generally, the second quarter is seasonally strong in terms of disbursements for an HFC. AUM growth of 47% YoY was in line with estimates. The mix has remained largely stable on both QoQ and YoY basis. C/I ratio (calculated) declined over 1,200bp YoY and 160bp QoQ to 23%. The sequential improvement is commendable, in our view. One of the key factors driving this is improving employee productivity. As per company disclosures, both disbursements/employee and loans outstanding/employee have increased at ~20% CAGR over the past two years (note that this number does not account for off-roll sales staff). We believe continued operating leverage is key to RoA/RoE improvement, and thus, for valuations to sustain.

Outlook

PNBHF continues to deliver strong growth in its loan book. Increasing geographical spread and new branch openings (110 branches in FY20E v/s 66 in FY17) are expected to result in the loan book growing to ~INR1t by FY20 (37% CAGR). With the pace of investments slowing down, coupled with operating leverage benefits kicking in, the expense ratio is set to decline meaningfully. Credit costs, however, are expected to inch up marginally on account of portfolio seasoning. All these factors put together are expected to drive 41% PAT CAGR over FY17-20E, with RoE inching toward high-teens over the medium term. We upgrade our FY18-20 EPS estimates by 2-9%. Buy with a target price of INR1,750 (3.8x Sep 2019E BVPS, 22x Sep 2019E EPS).For all recommendations report, click here

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