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MOSL: PNB HOUSING FINANCE (Neutral)-Still in consolidation mode

PNB HOUSING FINANCE: Still in consolidation mode

(PNBHOUSI IN, Mkt Cap USD1.2b, CMP INR511, TP INR560, 10% Upside, Neutral)

 

• PNBHF reported a 2QFY22 PAT of INR2.3b (9% miss), which declined by 25% YoY and 3% QoQ. The miss was driven by lower-than-estimated NII on account of income reversals due to accelerated run-off in the securitized pool of loans and partly mitigated by lower credit costs.
• NII fell 25% YoY and 9% QoQ to INR4.7b (9% below our estimate of INR5.1b). Provisions at INR1.4b were below our estimate of INR1.8b.
• Disbursements rose 21% YoY to INR29.6b. This led to AUM declining by 3% QoQ and 14% YoY to INR698b.
• GNPA/NNPA fell ~10bp/30bp QoQ to 5.9%/3.3% (as a percentage of loans), with Stage 3 PCR at 44%. ECL/EAD improved by ~30bp sequentially to 4.8%. Aggregate restructuring stood ~3.5% of AUM. A corporate exposure of INR1.6b (already identified as SICR) slipped into NPA in 2QFY22.
• In Oct'21, PNBHF decided to shelve its announced preferential equity allotment. Even though there is no immediate need to raise equity capital, with CRAR ~21% and gearing declining to 5.9x, we expect PNBHF to evaluate alternative methods of raising equity and seek board approval within 3-6 months.
• While the process of consolidation will continue in FY22E, we expect PNBHF to start growing its loan book from FY23E. Since it carries healthy provisions on its Balance Sheet, we expect credit cost to moderate from hereon. To guard against contingencies from the restructured advances and any new slippages in the Corporate loan book, we build in moderate credit costs of ~1.2%/1% in FY22E/FY23E. We have cut our FY22/FY23 estimate by 5%/8% to reflect lower NII and fee income. We expect PNBHF to deliver 14% PAT CAGR over FY21-24E and 11-12% RoE in FY23-FY24E barring any contingencies arising from a third COVID wave. We maintain our Neutral rating, with a TP of INR560/share (0.85x Sep’23E BV).