PNB HF’S rally may have run its course

Stock has soared 59 per cent after Carlyle deal

Shares of PNB Housing Finance (PNB HF) have soared a massive 59 per cent in three days after it announced equity infusion worth ~4,000 crore by the Carlyle Group (80 per cent) and other investors, removing a key overhang on the company’s growth outlook.

With this infusion, Carlyle Group’s stake will rise to over 50 per cent.

The fact that the capital raise was more than double the Street’s expectation (~1,800 crore) and Aditya Puri joining the board have also rubbed off well on sentiment. However, what’s left, say analysts, is for the company to deliver growth, crucial to sustain the sharp surge in price-to-book valuation (1.3 currently).

“The capital infusion plan should help PNB HF to refocus on growth after six quarters of loan book contraction. However, as it’s likely to continue shedding its wholesale book (16 per cent of AUM), net balance sheet growth will take longer to come through even as disbursements pick up in the retail loan portfolio (Loan Against Property and affordable),” note analysts at Credit Suisse.

The foreign brokerage maintains a “neutral” rating on the stock as it believes the expected growth in loan book will be gradual.

While the fund infusion is expected to help improve profit growth, brokerage estimates vary substantially.

For instance, ICICI Securities pegs profit after tax (PAT) to be flat at ~929 crore in FY22 before rising 64 per cent to ~1,521 crore in FY23. Meanwhile, Morgan Stanley estimates net profit to grow 29 per cent to ~1,200 crore in FY22, and 32 per cent to ~1,580 crore in FY23, before moderating to 13 per cent (~1,790 crore) in FY24.

The fundraise may ease for PNB HF going forward as there will be a sharp uptick in capital adequacy ratio (CAR) to 28 per cent, while reducing debt to equity ratio from 6.7x to less than 5x.

“This will instill confidence in the debt market, thereby improving visibility on debt rating upgrade. PNB HF will also accelerate its borrowing capabilities (at lower cost) for retail-focused growth,” noted ICICI Securities.

Analysts at Kotak Institutional Equities (KIE) said the capital infusion will address concerns arising from PNB reducing its stake in the housing financier. That said, PNB HF may continue to face asset quality issues. Currently, 12.7 per cent of its corporate book is in stage-3 NPA, while it is 2.5 per cent for the retail book.

Moreover, corporate and retail loans under stage-2 NPA stand at 10 per cent and 5.1 per cent, respectively.

Given this, KIE believes the company will need to rapidly scale up its LAP (26 per cent of loans including non-residential premises) and recent affordable/mass housing offering to drive loan book growth. Analysts expect PNB HF’S book value per share (BVPS) to drop from ~530.28 as on March 31.

In this backdrop, Morgan Stanley has cut EPS and BVPS forecasts for FY22-24 by 6-14 per cent and up to 6 per cent, respectively, while analysts at ICICI Securities peg EPS at ~34.3 in FY22 (from ~55.2 in FY21). The stock is trading ahead of the consensus target price.

The highest target price of ~678 is 2 per cent below its current price of ~693.20, while the lowest price (~575) is 17 per cent below. According to Bloomberg, 5 out of 8 analysts have a ‘buy’ rating. The average target price is ~615.