Holding Up retail & affordable housing PNB Housing targets 17% asset Growth

PNB Housing Finance shares have experienced a remarkable surge of 23% in the month of April, driven by a succession of rating upgrades that took place at the conclusion of March. However, industry experts maintain an optimistic outlook, suggesting that there is still ample opportunity for further expansion. In fact, they anticipate potential gains of up to 30% from the current levels.

On April 12th, PNB Housing received a 'buy' rating from brokerage firm Motilal Oswal, with a target price of Rs.1,000 per share. This indicates a potential upside of approximately 30% from the current prices.  

In a similar vein, Morgan Stanley has bestowed an 'overweight' rating on the stock, setting a target price of Rs.970, which suggests a projected surge of approximately 26%.

The lender based in Delhi has experienced credit rating upgrades from all three top ratings agencies - India Ratings, CARE, and ICRA - over the past three months. The housing finance company anticipates a 17% growth in its assets under management for the period of April-March 2024-25 (FY25).

Girish Kousgi, MD and CEO mentioned that the retail book, which had been stagnant for some time, is now gaining momentum and experiencing double-digit growth, while the affordable housing book is growing at an even faster rate compared to the retail book.

He added,“Growth on the retail book is not in single digits, it is in double digits. I think the growth on affordable is much higher, it is more than 25-28% quarter-on-quarter. Both in terms of disbursement as well as in terms of book so going forward on the growth side, we would again look at around 17% on the book for FY25.”

The AUM as at the end of December 2023 was at Rs.68,549 crore. PNB Housing has rapidly grown its affordable housing book since entering the segment 15 months ago. The affordable housing portfolio has already surpassed an AUM of Rs.1,000 crore and is expected to double soon.

It also redefined its business model to shift its focus from corporate loans to the retail segment. Also, the share of corporate loans in the overall loan mix decreased to about 4% in December 2023 from nearly 21% in March 2020.

Kousgi believes the credit rating upgrades will help in reducing the cost of funds for the company and magnify its competitive positioning in the market. He observed a reduction of 15-20 basis points in the cost of funds over the coming quarters.

Motilal Oswal projects the reduction in cost of funds to be around 20-25 basis points. The company, which has a market capitalisation of Rs.20,161.07 crore, has observed a sharp gain in its shares 76% over the last year.

Morgan Stanley mentined that the January-March 2024 quarter is seasonally a strong quarter for housing finance companies both from a loan growth and asset quality stand point.

The brokerage believes the PNB Housing stock trades at an attractive valuation of 1 times estimated price to book for April-March 2024-25 and 9 times price to earnings.