Broker’s call: PNB Housing (Buy)

Target: ₹1,000

CMP: ₹737.75

PNB Housing Finance plans to transform from a prime housing financier into a lender that offers a wide bouquet of mortgage products across cohorts of product and customer profiles. In addition to its existing affordable housing loans (Roshni) vertical, it will also enter the emerging market vertical from FY25.

PNBHF has restructured its business model and prioritized the retail segment by reducing corporate loans in the overall loan mix to about 4 per cent in Dec’23 from around 21 per cent in Mar’20, through down-selling, recoveries, and ARC sales. All the three credit rating agencies – India Ratings, ICRA and CARE – have upgraded PNBHF to AA+ within the last three months. This credit rating upgrade can help PNBHF reduce its cost of borrowings by 20-25bp.

However, there could be a near-term pressure on its NIM because of the much lower revenue contribution from the corporate loan books and higher competitive intensity. However, its pivot towards affordable housing and emerging vertical will help PNBHF improve its product mix that can mitigate the impact on its NIM.

It has a written-off pool of about ₹1,700 crore and ₹500 crore in corporate and retail, respectively.