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MOSL: PNB HOUSING FINANCE (Buy)-Scaling back in corporate disbursements-High provisions impact earnings

PNB HOUSING FINANCE: Scaling back in corporate disbursements; High provisions impact earnings

(PNBHOUSI IN, Mkt Cap USD1.7b, CMP INR712, TP INR850, 19% Upside, Buy)

 

• 1QFY20 PAT grew 11% YoY to INR2.8b (10% miss) in 1QFY20, largely due to higher provision cost.
• PNBHF continued to calibrate disbursements in 1QFY20 - disbursements declined 11% QoQ/22% YoY to INR76b, largely due to scale-back in corporate lending. The company is funding only to selective existing developers.
• AUM growth was healthy at 4% QoQ/29% YoY to INR883b. The company assigned INR23b worth of loans (home loans and LAP) during the quarter and recognized INR1.2b as upfront income (29% of PBT).
• On a calculated basis, yield on loans improved 10bp QoQ to 10.6%, while cost of funds increased by 30bp QoQ to 8.4%. Interestingly, PNBHF trimmed the liquidity on the balance sheet sequentially from INR80b to INR50b.
• Asset quality: GNPL ratio increased ~40bp QoQ to 85bp, primarily due to slippages of INR1.5b from one of the five 'watch-list' accounts. In addition, there were some seasonal slippages from the retail book. The new corporate NPL is a corporate term loan to an NCR-based developer with 27 acres of land in Gurgaon as collateral. ECL stage 3 provisions increased 230bp QoQ to 23.2%, leading to credit costs of INR1.6b v/s our estimate of INR0.5b.
• Valuation view: With the challenging macroeconomic environment, the tight liquidity scenario (mainly for HFCs) and the rising headwinds for the RE sector, we expect AUM CAGR to be moderate at ~15% over FY20-22. FY20 is likely to be a year of consolidation for PNBHF with a higher focus on rebalancing the portfolio and sweating the existing infrastructure. In the near term, cost management and asset quality are likely to take precedence over growth. On back of higher asset leverage (~11x), PNBHF is likely to raise capital in the ensuing quarters. We cut our EPS estimate by ~5% for FY20/21. Maintain Buy.