Strong Q4 with PAT growing at 30% QoQ.
PNB Housing Finance’s Q4FY24 result was marked by its highest YoY growth of retail AUM (97% of AUM) in the last 5 years, which grew at 10% YoY, in line with the management guidance. Notably, reported NIM expanded 16bps QoQ, led by robust NII growth of 6% QoQ,. Nevertheless, the competitive pressure on yields is likely to persist going ahead. However, the strategic initiatives taken by the management like entering affordable housing, shifting to the prime segment from super prime and entering the emerging market in Apr’24 (35-40bps higher yields than the prime segment), coupled with its consistent efforts to reduce its cost borrowings through higher diversification and the recent credit rating upgrade to AA+ may support spreads going ahead. The management has given a long-term NIM guidance of 3.5%.
Credit cost decreased sharply by 35bps to 0.04% in Q4FY24, supported by the company’s persistent efforts to recover its written-off pool, as it recovered INR 0.5bn in Q4. The same was further supported by consistent moderation in GNPAs, which declined to 1.5% vs 1.73% QoQ.
Robust business momentum with improving asset quality and better operating leverage as the cost to income declined 24% vs 25% QoQ. This led to a sharp 30% rise in PAT with RoAUM expanding by 50bps to 2.5% in Q4FY24.
PNB Housing Finance’s (PNBHF) strategy to build a scalable and sustainable retail mortgage business has shown signs of success as reflected in 10% YoY growth in retail business during Q4FY24 - the highest in past 5 years.
With new management’s focus on widening the target market and expanding yields, it has been investing in building up its affordable and emerging mortgage market while continuing to scale up its prime mortgage business in a calibrated manner.
The same was evident from its affordable housing book reaching 11x to INR 17.9bn last year, contributing ~12% of overall disbursements. Notably, the company has been able to do so whilst consistently improving its asset quality, with GNPA reaching 1.5% in Q4FY24 (3.8% in Q4FY23). With a focus on sustainably growing the retail book with high-yielding segments (17% growth for FY25E), the management plans to sustain RoA of 2.0%, whilst maintaining NIM and credit cost (ex-write-backs) at 3.5% and 0.3% on a steady-state basis.
Maintain BUY with an unchanged target price of INR 1,010, valuing the stock at 1.5x PBV Sep’25E BVPS.
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