MOSL: PNB HOUSING FINANCE (Buy)-Growth trajectory robust-incremental spread pressure

PNB HOUSING FINANCE: Growth trajectory robust; incremental spread pressure

(PNBHOUSI IN, Mkt Cap USD3.4b, CMP INR1414, TP INR1750, 24% Upside, Buy)

• PNB Housing Finance's (PNBHF) 4QFY18 PAT grew robustly by 50% YoY to INR2.2b, but missed our estimate by 5%, largely due to higher-than-expected opex. Excluding one-off expense of INR130m related to securitization, PAT would have been largely in line with estimates.
• AUM grew 50% YoY/8% QoQ to INR623b. Interestingly, PNBHF sold down INR31b worth of loans during the quarter, taking the total off-BS loan book to INR52b (8% of AUM). Repayment rate (annualized) was 28.8% in 4QFY18 v/s 24.4% in the year-ago period.
• Spreads (calc.) declined 23bp YoY to 2.72% (off a high base), resulting in NII growth of 36% YoY v/s AUM growth of 50% YoY. Spreads are likely to remain under pressure, as the increase in home loan rates will not be able to match the rise in cost of funds, in our view. Management has guided for a spreads range of 200-210bp, going forward.
• C/I ratio (calculated, excluding one-offs) came in at 28% v/s average of 22-24% in the past few quarters. We believe a sustained reduction in the C/I ratio is a must for an improvement in RoE.
• Asset quality remained largely stable, with GNPL/NNPL ratios of 0.33%/0.25%.
• For FY18, PAT was INR8.3b (+59% YoY) and RoA/RoE stood at 1.6%/14%.