PNB Housing Finance Limited
Know the Company
PNB Housing Finance Ltd (PNBHFL) is a leading player in India’s housing finance sector, with over 35 years of expertise in the field of mortgage finances. The company was promoted by Punjab National Bank (PNB) – India’s first Swadeshi bank- and is registered with the National Housing Bank. In November 2016, PNBHFL came out with an initial public offering and subsequently listed on the stock exchanges. As of June 30, 2024, promoter, Punjab National Bank holds 28.13% stake in PNBHFL and FIIs holds 17.89%. DIIS also holds 10.95% and general public having the remaining 43.04% stake in the Company.
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As a trusted brand, PNBHFL offers a wide range of home loans and related financial products, including loans for purchasing, constructing, repairing, and upgrading homes, as well as loans for commercial spaces, property loans, and residential plot purchases, etc.
The company boasts a widespread presence with 300 branches and outreach centers across India, including 160 dedicated branches for affordable Housing named Roshni, 90 for prime markets, and 50 for emerging markets. Additionally, the company leverages a robust network of over 14,000 channel partners, serving customers across 20 states. It also continues to invest in digital solutions, offering intuitive web and mobile platforms for seamless customer service.
Strengths
With a rich legacy spanning over three decades, the company operates across 20 states and Union Territories in India, benefiting from strong brand recognition and the trust of its parentage, PNB. The company’s support from its parentage, combined with its deep understanding of customer behavior across various market and credit cycles, has helps PNBHFL to navigate challenges and identify growth opportunities. This knowledge, along with its focus on retail loan growth have positioned the Company as a key player in India’s housing finance industry.
Over the years, PNBHFL achieved significant progress across multiple key parameters, including loan growth, asset quality, liquidity, credit rating, and profitability. A strategic shift towards the retail sector and a reduction in corporate exposure allowed the Company to concentrate on enhancing its asset quality and improving customer experience through digitalization. The launch of tailored products in the affordable housing segment, along with the creation of a dedicated vertical for high-yielding emerging markets, has been helps in this success. Retail loan assets crossed Rs 60,000 crore for the first time in FY24, while the affordable loan book grew rapidly, reaching Rs 1,790 crore by March 31, 2024, after just one year of operations.
PNBHFL has seen improvement in asset quality, with gross non-performing assets (NPAs) reducing by 233 basis points to 1.50% as of March 31, 2024. Net NPAs fell to 0.95% during the same period. Asset quality has seen a marked improvement, as a result of its focused underwriting, efficient collection efforts and the company’s strategic shift towards retail loans.
Its deposit mobilization efforts gathered momentum, resulting in the receipt of over 70,000 deposit applications amounting to Rs 6,263.56 crore. These initiatives have strengthened the company’s financial standing, reducing the cost of funds to 7.91%. The company’s ability to raise capital through a successful rights issue of Rs 2500 crore (in the last financial year) further strengthened its financial foundation. The enhanced performance also led to a series of credit rating upgrades, with PNB Housing Finance receiving an AA+ rating from three leading credit rating agencies – India Ratings, ICRA, and CARE.
PNB Housing Finance has effectively leveraged its extensive experience in the prime segment to drive growth in emerging markets and affordable housing. The Company established dedicated branches for its affordable and emerging market verticals to meet the specific needs of its target customers by expanding its presence in tier 1, 2, and 3 cities. The newly launched Emerging Markets vertical, with 50 branches across 12 states, focuses on serving customers in these higher-yielding regions.
The affordable and emerging markets segments are expected to contribute 40-42% of the company’s incremental business going forward. By strengthening its distribution network, enhancing its asset quality, and diversifying its borrowing mix, the company is well-positioned to capitalize on growth opportunities in both prime and emerging market segments.
Retail loans have been a major focus, now accounting for 97% of the company’s total loan book in FY24, up from 87% in FY22. The company’s retail loan book covers both the prime and affordable segments, the latter marketed under the ‘Roshni’ brand. Expansion into tier 2 and 3 cities has been a key strategy to grow its individual housing loans, which primarily target salaried and self-employed individuals. Retail non-housing loans have also seen strong growth, with disbursements rising by 22.6% to Rs 4,510 crore in FY24, reflecting the company’s commitment to expanding its customer base across different loan segments.
Healthy Borrowing Mix
PNBHFL has successfully diversified its funding mix to enhance financial stability. In FY24, the company resumed borrowing from the debt market by collaborating with mutual funds and insurance companies, utilizing instruments like NCDs and Commercial Paper. The focus was also on rebuilding its deposit book, which is the largest among HFCs in India. The borrowing mix as of March 31, 2024, included bank borrowings (40.2%), deposits (32.3%), NCDs (9.6%), Commercial Paper (6.0%), NHB refinance (9.2%), and ECBs (2.6%). With 71% of borrowings in the floating category, the company can adapt to market opportunities. The cost of borrowing was 8.01%, with an incremental cost of 7.91%.
Margins Set to Improve
According to the CMD, PNB Housing Finance expects its net interest margin to remain steady at around 3.65% for the next two to three quarters. A gradual increase is anticipated thereafter, driven by the company’s strategic shift towards higher-yielding segments within retail. The focus is on expanding into affordable and emerging market segments, which are expected to boost margins over time.
Robust Financials
PNB Housing Finance reported a near 25 per cent rise in net profit for first-quarter of the current FY, helped by a steady demand for home loans. The company’s consolidated net profit rose to Rs 433 crore for the quarter ended June 30, up from Rs 347 crore a year earlier. Disbursements for the period rose 19 percent year-on-year to Rs 4,398 crore, with retail disbursements accounting for 99 percent. At the same period total revenue rose to Rs 1813 crore from RS 1699 Crore in the year ago period. Emerging markets and affordable housing segments contributed 33 percent of the retail disbursements during the quarter.
Asset Quality also improved considerably as the overall Gross Non-performing Assets (GNPAs) declined by 233 bps to 1.50% as on March 31, 2024 as compared to 3.83% as on March 31, 2023. The Retail and Corporate GNPAs declined to 1.45% and 3.31% respectively as on March 31, 2024 as compared to 2.57% and 22.25% respectively as on March 31, 2023.
The Capital Adequacy Ratio of the Company stood at comfortable levels, as on March 31, 2024 was 29.26% (comprising Tier I capital of 27.90% and Tier II capital of 1.36%). The Reserve Bank of India (RBI) has prescribed a minimum CRAR of 15% of total risk weighted assets.
Industry Structure and Outlook
India’s home loan market has been experiencing robust growth since the past few years, driven by a strong real estate sector and Govt support, especially for the affordable housing sector. In the last financial, HFCs showed a higher year-on-year growth of 18%, compared to a 16% growth for Scheduled Commercial Banks. From March 2019 to December 2023, housing credit grew at a compound annual growth rate (CAGR) of 14%, showcasing the sector’s sustained momentum (source: Company AR).
The push for affordable housing continues to be a key focus, supported by the Pradhan Mantri Awas Yojana (PMAY) 2.0, a government subsidy program aimed at low and middle-income families. The PMAY program successfully allocated a total of Rs 165,000 crore and Rs 200,000 crore respectively in the previous two financial years. For the current financial year also, the program set aside a capital support fo Rs 230,000 crore. It is expected to significantly boost the housing finance demand in the upcoming year too.
The Company management projected that the affordable housing segment, specifically, is projected to grow to Rs 5,000 crore in the current financial year and Rs 15,000 crore by FY27, further contributing to the industry’s growth trajectory.
India’s housing sector is experiencing rapid growth, driven by key factors such as favorable demographics, rising income levels, and low mortgage penetration. With a population of 1.4 billion, India has the world’s largest share of young people, and by 2034, an estimated one billion individuals will be within the working age group of 15-64 years. This young population, coupled with a growing per capita income is increasingly opting for homeownership, particularly on the current nuclear family concept. Additionally, India’s relatively low mortgage penetration rate compared to other emerging markets presents significant potential for expansion.
Cause of Concern
Major risk factors affecting for the HFCs are stiff competition from banks, especially after the merger of HDFC Ltd with HDFC Bank. Banks typically have lower borrowing costs and may offer more competitive interest rates, which can squeeze margins for HFCs. Besides this HFCs usually offer long-term loans, while their borrowings may be short to medium term. A mismatch in interest rates between loans and liabilities can expose them to risks if rates fluctuate unfavorably.
Sector: Financial Services
Market Price: Rs. 940.45 as on today
FV: Rs 10/-
Stock Name: PNB Housing Finance Ltd
BSE Code: 540173, NSE Code: PNBHOUSING
Market Cap.: ₹24290 Crore
Book Value: Rs. 575
Segment: Housing Finance
Incorporation: 1988
Headquarters: New Delhi
