PNB Housing Finance - Stress a cause of concern; business transformation a source of comfort - ICICI Securities

PNB Housing (PNBHF) reported a beat on earnings (PAT: Rs3.13bn vs our estimate of
- Credit costs in H2FY21 can be volatile: Overall, there are green shoots visible in the real estate sector with rising demand for residential home loans, higher conversion rates and reducing inventory level at developer-end. However, 19% of 81% of retail morat customers, not having paid any instalment in past six months, need to be monitored closely. Besides, the developer segment had 85% moratorium request and how much of it translates to restructuring requests needs clear visibility (likely only by Dec'20). More so, the management highlighted that it has received several restructuring requests and also, as an HFC, its customers would not be able to avail of the DCCO extension benefit. Consequently, over and above the 3% provisioning (as percentage of advances), we build a further cumulative credit cost of 110-120bps of AUM each over FY21E-FY22E.

- NIMs expanded 90bps QoQ settling at higher than anticipated level of 3.5%: NIMs had threefold benefits during the quarter: 1) sharp fall in buying banks' MCLR, which led to improved spreads on existing securitised assets - benefit of Rs1.1bn (50bps); 2) cost of borrowing reduced by 12bps to 8.01%; 3) Increased 100bps lending rate for the non-retail portfolio. We believe a portion of these benefits are sustainable and we revise our NIM (as % of AUM) estimates to 2.7% for FY21E (earlier: 2.2%).

- Business transformation and top management stability to lend comfort: Mr. Hardayal Prasad, appointed as the new MD & CEO, will now provide stability at the top. He articulated a similar strategy of focusing on mass housing and the high-yielding (Unnati) retail segment. Retail segment accounted for 95% of H1FY21 disbursements and is back to >85% of pre-Covid levels. Rebalancing the portfolio by trimming down corporate developer AUM will result in flat overall portfolio growth.

- Equity capital raise - credit rating upgrade imperative: An equity infusion at current valuations will be dilutive of book value. Despite healthy capital adequacy of 18% (tier-1: 15.3%), it is imperative that PNBHF completes the proposed capital raise to bring in confidence and risk capital to mitigate the lurking risk of a further credit rating downgrade due to concerns around potential slippages in the corporate book.

Shares of PNB Housing Finance Ltd was last trading in BSE at Rs.353.6 as compared to the previous close of Rs. 345.05. The total number of shares traded during the day was 16525 in over 1011 trades.

The stock hit an intraday high of Rs. 360 and intraday low of 344. The net turnover during the day was Rs. 5810682.

Source : Equity Bulls

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