PL Stock Report - PNB Housing Finance (PNBHOUSI IN) - Management Meet Update - Turnaround progressing; growth to accelerate - Not Rated

PNB Housing Finance (PNBHOUSI IN) - Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: Not Rated | CMP: Rs589 | TP: NA

Management Meet Update - Turnaround progressing; growth to accelerate

We hosted MD&CEO of PNB Housing, Mr. Girish Kousgi in Mumbai. The company seems to be undergoing a turnaround; balance sheet is growth ready as loan book is completely calibrated with retail, now contributing 94% to overall AuM. Concentration risk has also reduced as ticket size in housing is now capped at Rs30mn that was Rs150mn at its peak. Guidance is to grow retail by 18% in FY24 driven by prime, while affordable housing (AH) would also be a focus segment. Share of AH in disbursals could be 10% in FY24. With targeted NIM of 3.5% in FY24, company expects RoA of 2% in Q4FY24E mainly led by reduction in credit costs due to sharp GNPA decline. Although not under our coverage, we recommend to evaluate PNB Housing as a mid-cap idea. Stock is valued at 1.0x consensus FY25E ABV. For re-rating to continue, it is vital that company delivers on loan growth and resolutions.

♦ Substantial reduction in corporate; balance sheet ready for growth: Portfolio at Rs59.3bn is completely calibrated with retail now contributing 94% to AuM. Retention team is strengthened resulting in closures reducing to 17% from 22%. For FY24E targeted growth in AuM/disbursal is 18%/22% YoY, mainly driven by prime and affordable housing. Company has exited super prime segment to focus on prime which yields 75-80bps higher. Affordable housing would contribute 10% to disbursals. Currently, salaried to self-employed mix is 59:41, while mix in retail disbursal is 62:38. PNB Hsg. is targeting to scale up salaried share to 70% over medium to long term. Concentration risk has also reduced materially as ticket size in housing is now capped at Rs30mn that was Rs150mn at its peak. Incrementally, 93% of the portfolio has a ticket size

♦ NHB access to start again; cost of funds could decline: Access to NHB funds will be available in FY24 after a gap of 2 years as company’s NNPA was higher than threshold of 3.5%. Company intends to raise ~Rs25bn in FY24 through NHB route. Overall NHB share is expected to stabilize between 10-15% over medium term compared to 5.7% in FY23. Cost advantage on NHB is 100bps compared to overall funding cost. Incremental borrowing cost is 8% and company expects cost of funds to improve by 30-35bps in FY24 mainly on account of: (1) access to NHB funds (2) fresh bank borrowings likely to come in at a lower price (3) potential ratings upgrade from AA to AA+ which will bring down funding cost gap with best rated companies and (4) HDFC merger vacating space resulting in better access to debt market.

♦ Opex/assets to remain stable; asset quality to drastically improve: Opex will remain stable even after introduction of affordable housing. Total branches stood at 182 and plan is to add 20 more AH branches in FY24 taking total count to 200 consisting of 100 prime and 100 AH. Sourcing mix is at 55% through direct channels (DSTs) and balance 45% through DSAs; there are no intentions to enter into fintech partnerships. On asset quality GNPA is expected to reduce from 3.8% to 1.2% over next 4-5 quarters largely driven by corporate resolutions and retail recoveries. Credit costs too may drastically decline from 1.2% in FY23 to 0.6% in FY24 and 0.4% in FY25 (steady state level). To focus on recoveries and control stress, 4 collection teams across buckets have been created while exposure has been cut to certain geographies where delinquencies were high.

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