PNB Housing Finance (PNBHF) reported 2QFY20 results with the key pointers being: (1) Spread expanded 39 bps YoY to 2.62%; outlook for spreads remains positive (2) Disbursement de-growth was sharper than expected; capital raise pushed back (3) Asset quality was stable with Stage 3 assets ratio at 84%, down 1 bp QoQ and (4) Opex to ATA declined 5 bps YoY to 57 bps, which is also broadly along expected lines (See comprehensive conference call takeaways on page 2 for Target Price: Rs576 significant incremental colour). Per se, on the key P&L items, PNBHF posted 36% YoY NII growth at Rs6,268mn, PPOP growth of 47% YoY at Rs5,444mn and PAT growth of 64% YoY at Rs3,421mn. We have revised our estimates for FY20/FY21/FY22 and retained Buy rating on PNBHF, revising our target price to Rs576 (from Rs739 earlier) and valuing the stock at 0.9x H1FY22E P/BV.
We believe the liquidity stress and headwinds in the real estate sector to continue over the medium term. However, PNBHFL’s cautious stance on lending towards corporates and continued focus on maintaining excess liquidity provides comfort. We have pegged a multiple of 1.3(x) to FY 21E ABV & arrived at a fair value of Rs 770 per share. At CMP of Rs 715 the stock is trading at FY21E P/ABV of 1.2(x). We have a “Hold” rating on the stock.
We have revised our NII estimates by 1.7%/3.4%, PPOP estimates by 3.3%/5.2% and PAT estimates by 0.8%/1.9% for FY20/FY21, respectively. We have retained Buy rating on PNBHF, revising our target price to Rs960 (from Rs956earlier) and valuing the stock at 1.5x FY21E P/BV.
We believe PNB housing finance will continue to deliver strong growth while maintaining asset quality and liquidity in its book. Management’s cautious stance on corporate book may moderate the disbursement growth in the near term. PNBHFL’s Tier-1 ratio stood at 11% as of FY19. We have pegged a multiple of 1.4(x) to FY 21E ABV & arrived at a fair value of Rs 835 per share. At CMP of Rs 700 the stock is available at its FY 21E P/ABV of 1.2(x). We have an “Accumulate” rating on the stock.
Deepika Gupta Padhi, Head of Investor Relations and Shweta Bansal, Assistant Manager, Investor Relations of PNB Housing Finance (PNBHF) and gleaned incremental insight into the strategy of the company. We share our detailed takeaways below. We revise our estimates for FY20/FY21 and retain Buy rating, revising our target price to Rs931 (from Rs1,140 earlier), valuing the stock at 1.5x FY21E (or 1.7x FY20E) P/BV. We think that the underperformance of PNBHF stock is overdone.
Post the strong disbursement CAGR of 55%+ over FY13-18, growth has moderated sharply to ~9% YoY in FY19. The liquidity crisis, coupled with increasing stress in corporate segment, warrants caution. With asset leverage already at 11x and a cautious outlook in the underlying business, disbursement growth is likely to remain moderate over the near-to-medium term. Reduction in the repayment rates is likely to support AUM growth (~15%). We factor in NIM compression of 20bp and a rise in credit cost by 5- 10bp. We cut our earnings estimates 3-6% for FY20/21. Maintain Buy with a TP of INR875 (1.5x FY21E).
Demand environment for NBFCs is on revamp now and we believe going forward PNBHFL lending will improve compare to FY19. It has strong liability franchise and maintaining excess liquidity to avoid volatility in overall cost of funds, while pressure will be seen on margins. At CMP of Rs 862 the stock is available at its FY 20E P/ABV of 1.7(x). We value the stock at a FY20E target P/ABV multiple of 2x, which yields a target price of Rs 998 per share. We have an ‘ACCUMULATE’ rating on the stock.