Invest in HFCs bet on PNB Housing Finance Ltd

With improved profitability and entry in the affordable housing segment makes PNB Housing Finance Ltd. (PNB HFL) a good investment option. Among the housing finance companies (HFCs), PNB HFL has access to diversified source of funds and better asset quality. PNB HFL is promoted by Punjab National Bank and is a registered Housing Finance Company with National Housing Bank (NHB). We have arrived at a target price of Rs. 543 with a “Buy” rating.

What’s in the making?

PNB HFL recently successfully completed rights issue in May 2023 and raised funds to the tune of Rs. 2,493.76 crores, which in turn helped the to support future growth while maintaining prudent capitalisation. There has been an improvement in the asset quality, which is evident by the decline in Gross and Net NPA (Non-performing Assets). With a sharp drop in both GNPA (down 4.30% Year on Year basis) and NNPA (down 2.30% Year on Year) was supported by write-offs, resolutions, rundown and accelerated prepayments in the corporate book.

At the same time, PNB HFL increased its focus towards the affordable housing segment since Q4FY23 and disbursed around Rs. 137 crores via dedicated affordable housing branches. The Company expect to see good traction from the affordable segment in the coming quarters. The company has increased its lending rates by 0.30% in the March quarter whose impact will be seen in Q1FY24. The company has shifted its focus on the retail business over the corporate business and can maintain GNPA under control.

The Way Forward…
The company’s gradual shift to focus on profitability along with maintaining stable asset quality has been seen in the performance of the company. Also, the company has been able to achieve the highest retail disbursement and loan assets as an outcome of the ongoing efforts to build the retail business. The management has guided that there shall be disbursement growth of about 22%, primarily in the prime and affordable segment in the next 2-3 years. These factors will play out positively for the company in the foreseeable future.