Despite a strong performance in the July-September quarter (Q2FY24) across all fronts, shares of PNB Housing Finance declined by 2% to Rs 701 on October 25. Brokerages have turned bullish on the company due to the sharp reduction in stress and management’s guidance of declining borrowing costs going forward.
In the past month, the stock of this housing finance company has risen by 10%, in contrast to a 2% decline in the benchmark Sensex.
Global brokerage firm Morgan Stanley has an “overweight” rating on the stock with a target price of Rs 880. Analysts believe that PNB Housing’s balance sheet has been strengthened after the state-owned lender used recoveries from large corporate non-performing loans (NPLs) to write off retail gross NPLs.
In Q2FY24, PNB Housing’s gross non-performing assets (GNPAs) decreased to 1.7% from 6.06% a year ago, while net NPA declined to 1.1% from 3.5%.
Motilal Oswal analysts upgraded their rating on PNB Housing to “buy” with a target price of Rs 950 per share. They noted that the housing finance company could see further improvement in retail asset quality in the second half of FY24 (H2FY24) and start FY25 with a clean slate if additional write-offs are taken.
PNB Housing’s profit in Q2FY24 surged by 46% year-on-year (YoY) to Rs 383 crore, while revenue from operations grew by 5.5% YoY to Rs 1,777 crore.
Potential for Margin Improvement
The increase in the average cost of borrowings impacted PNB Housing’s net interest margins (NIMs) in Q2FY24. NIMs were down 20 basis points (bps) YoY to 3.9% in Q2FY24. However, the management has indicated that the cost of borrowings has peaked and should decline from hereon. This guidance could potentially lead to NIM expansion in the coming quarters.
Strong Outlook for Loan Growth and Disbursements
Total disbursements for the quarter increased by 16.3% YoY, with the total loan book growing by 5.3%. The management has maintained its guidance for 17-18% YoY retail loan growth and 22% YoY growth in retail disbursements. Motilal Oswal analysts expect a better loan growth outlook and lower credit costs to drive a 4-9% increase in FY24/25 EPS estimates.
“We expect PNB Housing Finance to deliver compounded annual growth rate (CAGR) of 13/28 percent in AUM/PAT over FY23-26 and 2.4/12.4 percent RoA/RoE in FY26,” the brokerage firm added.
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