Neutral on PNB Housing Finance, target price Rs 190: Motilal Oswal
The brokerage cut the FY21-22 EPS estimates by 8-11 per cent to factor in lower growth and higher credit costs.
Motilal Oswal has given a neutral rating to PNB Housing Finance with a target price of Rs 190 (0.3 times FY22E book value of equity per share.) As disclosed to a stock exchange, the housing finance company ended the fiscal year with AUM of around Rs 840 billion (-3 per cent QoQ/-1 per cent year on year).
According to the brokerage’s calculations, disbursements during the quarter would have been 50-60 per cent down YoY to Rs 35-40 billion. The disbursements are likely to be muted due to (a) lower incremental demand post COVID-19, (b) scale-back in corporate lending and (c) high leverage.
The company raised deposits of Rs 92 billion in FY20 (around Rs 15 billion in the fourth quarter of FY20). The share of deposits stood at 19 per cent of total borrowings in 9MFY20 (+200bp quarter on quarter). As of FY19, 82 per cent of deposits were retail, thus adding to the granularity of the deposit portfolio.
The share price of the company moved up by 4.60 per cent from its previous close of Rs 161.00. The last traded price is Rs 168.40. incorporated in 1988, PNB Housing Finance has a market cap of Rs 2830.59 crore.
Margins and liquidity: The company ended the year with Rs 76 billion of liquidity on the balance sheet (ex-SLR investments). In addition, it has Rs 40 billion of undrawn lines from banks outstanding. This was after net borrowing repayment of Rs 25 billion during the quarter.
The loan spread is expected to be within the guided range of 2.1-2.15 per cent for the year. The NBFC entered into an agreement for a $75 million ECB from Japan International Cooperation Agency (JICA) with $25 million co-financing from Citibank. The loan is for a five-year tenure and for providing affordable housing finance to low-income households.
Investment Rationale
The past 4-6 quarters have been tough for the NBFC on both liability and asset sides. It has not been able to raise adequate money from capital markets and relied largely on bank loans and securitization for incremental debt capital. High securitization volumes have also boosted earnings in FY20 due to upfront income recognition under Ind-AS.
On the asset side, there was slowing growth and an increase in the GNPL ratio (up 100bp to 1.45 per cent). Recovery of stressed corporate accounts would now be delayed due to the impact of Covid-19 on the real estate sector. While on-balance sheet leverage has declined over the past four quarters, it is still high at 9 times. The ability to raise equity capital will determine the near-to-medium term trajectory of the company.
The brokerage cut the FY21-22 EPS estimates by 8-11 per cent to factor in lower growth and higher credit costs. This did not factor in any capital raise. The housing finance company is likely to deliver high-single-digit AUM CAGR with RoE of 12-14 per cent.
Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 2074.76 crore, down -6.95 per cent from last quarter sales of Rs 2229.71 crore and down -.14 per cent from last year same quarter sales of Rs 2077.74 crore. The company reported net profit after tax of Rs 237.02 crore in the latest quarter.
According to the brokerage’s calculations, disbursements during the quarter would have been 50-60 per cent down YoY to Rs 35-40 billion. The disbursements are likely to be muted due to (a) lower incremental demand post COVID-19, (b) scale-back in corporate lending and (c) high leverage.
The company raised deposits of Rs 92 billion in FY20 (around Rs 15 billion in the fourth quarter of FY20). The share of deposits stood at 19 per cent of total borrowings in 9MFY20 (+200bp quarter on quarter). As of FY19, 82 per cent of deposits were retail, thus adding to the granularity of the deposit portfolio.
The share price of the company moved up by 4.60 per cent from its previous close of Rs 161.00. The last traded price is Rs 168.40. incorporated in 1988, PNB Housing Finance has a market cap of Rs 2830.59 crore.
Margins and liquidity: The company ended the year with Rs 76 billion of liquidity on the balance sheet (ex-SLR investments). In addition, it has Rs 40 billion of undrawn lines from banks outstanding. This was after net borrowing repayment of Rs 25 billion during the quarter.
The loan spread is expected to be within the guided range of 2.1-2.15 per cent for the year. The NBFC entered into an agreement for a $75 million ECB from Japan International Cooperation Agency (JICA) with $25 million co-financing from Citibank. The loan is for a five-year tenure and for providing affordable housing finance to low-income households.
Investment Rationale
The past 4-6 quarters have been tough for the NBFC on both liability and asset sides. It has not been able to raise adequate money from capital markets and relied largely on bank loans and securitization for incremental debt capital. High securitization volumes have also boosted earnings in FY20 due to upfront income recognition under Ind-AS.
On the asset side, there was slowing growth and an increase in the GNPL ratio (up 100bp to 1.45 per cent). Recovery of stressed corporate accounts would now be delayed due to the impact of Covid-19 on the real estate sector. While on-balance sheet leverage has declined over the past four quarters, it is still high at 9 times. The ability to raise equity capital will determine the near-to-medium term trajectory of the company.
The brokerage cut the FY21-22 EPS estimates by 8-11 per cent to factor in lower growth and higher credit costs. This did not factor in any capital raise. The housing finance company is likely to deliver high-single-digit AUM CAGR with RoE of 12-14 per cent.
Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 2074.76 crore, down -6.95 per cent from last quarter sales of Rs 2229.71 crore and down -.14 per cent from last year same quarter sales of Rs 2077.74 crore. The company reported net profit after tax of Rs 237.02 crore in the latest quarter.