ALM mismatch, higher CP mix likely to affect spreads; EPS growth to slow; ‘Hold’ retained owing to valuation.
Q2 PAT rose 33.2% y-o-y to Rs 2.53 bn, a 8% miss vs. our estimate due to higher credit cost and tax. Loan disbursal moderated in Q2. ALM gap exists but CP mix fell in Q2. We expect ALM mismatch (<1 year), higher CP mix to affect loan growth and spreads. EPS growth should decelerate and RoA may be capped. Asset quality is stable, but exposure to stressed developer segment is a risk. Stake sale overhang persists, but at 1.7x FY20e BV, we see limited downside. Hold.
Loan growth still strong; but disbursal decelerates AUM grew 43% y-o-y. Disbursal growth slowed to 14% y-o-y (Q1 25% y-o-y) due to (i) slowdown in home loan (HL) disbursal and (ii) deliberate slowdown in LRD (Lease Rental Discounting) disbursal, due to tighter liquidity. PNBHFL continues to add branches (+12 in 1H FY19), but we believe PNBHFL’s disbursal growth will moderate due to tighter liquidity. We forecast AUM growth of 31% CAGR over FY18-21e.
Spread up q-o-q, but should moderateSpread (ex assignment) was 213bps (-13bps y-o-y). Reported yield rose 10bps q-o-q to 9.94%. Average borrowing cost rose 8 bps q-o-q to 7.81% (+5bps y-o-y). Marginal funding cost in Q2 was 8.2-8.3%. This should rise in coming quarters. PNBHFL had raised HL by 15bps in Oct. Mgmt expects to maintain spreads of 205-215 bps, but we expect 22 bps spread compression over FY18-20e.
ALM mismatch exists, CP mix decline a positive
PNBHFL has asset–liability mismatch (ALM) gap of Rs 5.3 bn in 1-3 month bucket and cumulative ALM gap of `9 bn in less than 12 month bucket. We do not see major liquidity issues near term as it has over `40 bn of cash/liquid investments as of Sept 18. Mix of CPs in overall borrowings fell to 13% from 16.9% in Q1, while bank borrowings have increased to 22% (17.5% Q1). CP refinancing needs are limited till Dec as per mgmt.
Asset quality steady, credit costs rise
GNPA/S3 assets was stable q-o-q at 0.45% (Q1 0.43%). Credit cost rose 11 bps q-o-q to 40 bps vs. our 33bps estimates. Exposure to stressed developer Supertech is `2.8 bn, but the loan is not an NPA as per management.