Buy PNB Housing; target of Rs 1000: Motilal Oswal

Motilal Oswal's research report on PNB Housing

PNB Housing Finance (PNBHF) plans to transform from a prime housing financier into a lender that offers a wide bouquet of mortgage products across cohorts of product and customer profiles. In addition to its existing affordable housing loans (Roshni) vertical, it will also enter the emerging market vertical from FY25. PNBHF has restructured its business model and prioritized the retail segment by reducing corporate loans in the overall loan mix to ~4% in Dec’23 from ~21% in Mar’20, through down-selling, recoveries, and ARC sales. All the three Credit Rating Agencies (CRA) – India Ratings, ICRA and CARE – have upgraded PNBHF to AA+ within the last three months. This credit rating upgrade can help PNBHF reduce its cost of borrowings by 20-25bp. However, there could be a near-term pressure on its NIM because of the much lower revenue contribution from the corporate loan books and higher competitive intensity. However, its pivot towards affordable housing and emerging vertical will help PNBHF improve its product mix that can mitigate the impact on its NIM.

Outlook

We expect PNBHF to deliver a PAT CAGR of ~26% over FY24-26 and an RoA/RoE of 2.5%/13.0% in FY26. Reiterate BUY with a TP of INR1,000 (based on 1.4x FY26E P/BV).