PNB Housing Finance rating- Buy: Fund-raising to bring triggers in its wake

By: |
June 07, 2021 2:30 AM

But growth & RoEs to soften in interim; upgraded to ‘Buy’ with TP going up to Rs 678

Strategically, business transformation is underway with new agenda to target mass retail housing, build the high-yield Unnati portfolio and drive efficiency through cost management.Strategically, business transformation is underway with new agenda to target mass retail housing, build the high-yield Unnati portfolio and drive efficiency through cost management.

PNB Housing Finance’s (PNBHF’s) Board approval for preferential issue, to raise Rs 40 bn @ Rs 390 per share, reduces the overhang on much awaited equity infusion and/or stake sale. It also brings with it a few notable positive triggers: (i) Carlyle raising its stake to 50% and PNB’s stake to be down to 20% (not expected to go below this), putting to rest the overhang of any further stake sale in the interim; (ii) Aditya Puri’s nomination to the Board will lend considerable credence to the company’s business transition and strategic intentions; (iii) capital buffer (CAR of >28%) is enhanced to adequately face the potential stress due to Covid disruption, and gradually improve visibility on rating upgrade.

Strategically, business transformation is underway with new agenda to target mass retail housing, build the high-yield Unnati portfolio and drive efficiency through cost management. However, in the interim transitioning phase, growth and RoE will be modest. Given equity dilution of more than 60% and that too below book value, it would be dilutive to the extent of 10% to book value and 25-30% to EPS and would moderate RoEs further to 10% (from 12%).

Strengthening of the Board, management, governance and risk management, coupled with scarcity premium, can drive re-rating to 1.2x FY23E book. Upgrade to Buy with a revised target price of Rs 678 (earlier: Rs 385). Key risks: (i) Business transitioning taking longer than expected; and (ii) Corporate book stabilisation and resolution of stress would be key monitorable.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Dodla Dairy IPO: Check share allotment status online, grey market premium; shares to list on June 28
2Nifty to consolidate in 15,900-15,400 range in F&O expiry week, Bank Nifty positive; RIL, Infosys top bets
3Nifty may hit 16,100, if it crosses 15,750; Bank Nifty remains in uptrend; Infosys, Asian Paints in focus