Neutral on PNB Housing Finance, target price Rs 190: Motilal Oswal

Motilal Oswal has given a neutral rating to PNB Housing Finance with a target price of Rs 190. The share price moved down by -0.68 per cent from its previous close of Rs 212.45. The last traded stock price is Rs 211.

PNB Housing Finance reported Rs 2.4 billion net loss against the brokerage estimate of Rs 2.4 billion PAT) in Q4 of FY20, driven by higher-than-expected provisions. The company reported provisions of Rs 7.5 billion against brokerage estimate of Rs 1.4 billion), including Covid-19-related provisions of Rs 4.7 billion. 49 per cent of the loan book was under moratorium 1.0 and 31 per cent under moratorium 2.0. Given the high leverage, the brokerage expects the company to continue to run down its balance sheet. It has increased FY21 credit cost estimates by 70bp.

Investment Rationale

Over the past 18 months, the company has been facing tight liquidity, which has translated into flat AUM. Moreover, the moratorium number reported by the company is meaningfully higher than that reported by some large banks and HDFC. As a result, asset quality is likely to be a challenge in FY21. The brokerage forecasts a jump in the GNPL ratio to 8 per cent in FY21, driven by both retail and corporate slippages. As a result, the credit cost estimate is 70bp higher than earlier. Hence, the brokerage has cut its FY21 EPS estimates drastically and FY22 EPS estimates by 30 per cent. It maintains a neutral rating with a target price of Rs 190 (0.4 times FY22 BVPS).
Source: MOFSL

Financials

For the quarter ended March 31, 2020, the company has reported consolidated sales of Rs 1946.44 crore, down -6.18 per cent from last quarter sales of Rs 2074.76 crore and down -9.27 per cent from last year same quarter sales of Rs 2145.21 crore. The company reported net profit after tax of Rs -242.06 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 32.65 per cent stake in the company as of March 31, 2020, while FIIs held 21.80 per cent, DIIs 6.34 per cent and public and others 39.21 per cent.