Buy PNB Housing; target of Rs 1025: Motilal Oswal

Motilal Oswal's research report on PNB Housing

PNB Housing (PNBHF)’s 3QFY24 PAT grew 26% YoY but declined 12% QoQ to ~INR3.4b (~15% miss) due to NIM (excluding one-offs) compression of ~20bp QoQ. Management attributed this to a combination of factors such as: 1) corporate book decline, b) loan book retention to stem BT-OUTs, and c) competitive dynamics resulting in lending at lower rates in select pockets. NII (excluding one-offs) declined ~1% YoY and 3% QoQ to ~INR6.2b due to a gradual shift in the mix towards retail. However, reported NII declined ~19% YoY and ~10% QoQ to INR 5.95b (11% miss). Reported PPOP declined 26% YoY to INR5b (14% miss). PNBHF’s 3QFY24 disbursements grew 21% YoY but declined ~1% QoQ to ~INR41.3b. Total loan book grew ~7% YoY/ 2.4% QoQ to ~INR623b. However, retail loans grew 13% YoY. We estimate a retail loan growth of ~14% in FY24.  Management shared that it will look to improve yields by catering to the Prime, Roshni and Emerging Market customer verticals. It further targets to bring down its CoB by: 1) engaging with banks for lower spreads on MCLR loans, 2) effectively tapping the debt markets backed by potential credit rating upgrades from other CRAs, and 3) tapping into NHB borrowings. PNBHF also lowered its credit cost guidance to ~30-35bp for FY24/FY25/FY26.

Outlook

We cut our FY24 PAT estimate by ~5% to factor in the YTD performance and NIM compression. We expect PNBHF to deliver a CAGR of 18%/28% in AUM/PAT over FY24-FY26 and ~2.5%/13.5% RoA/RoE in FY26. Reiterate BUY with an unchanged TP of INR1,025 (based on 1.4x FY26E BVPS).