PNB Housing Fin - Fast Growing HFC

(Jaclyn) #266

Parent’s capital may be wiped off and as majority shareholder Govt may step in to infuse capital. That is you and me paying indirectly for the mistake because so far we have voted for a socialist regime which is root cause of this problem of bank nationalisation.

But there will be pressure to get the money and like Canara bank the decision makers can decide to sell off the stake. Let PNB come out with how they are going to handle the hole in the balance sheet. Being a govt. run bank the depositors would not be concerned much and majority of them may not be aware of its implications.

As for the PNB HSG borrowers it should not matter because the lender should be more concerned than the borrower. As for public depositers with PNB Hsg, if they thought it is majority govt owned, the perception would remain. For those who are aware of the difference, they may deside to withdraw if their concern bothers them. The company may face short term redemption pressure and that should be part of their business plan. But their future borrowings may be priced higher because of investor conversation.


The view from a prominent Foreign broker reinforces the popular perception of cascading impact of Niravgate on PNBHF.

The possibility of a full exit of PNB from its HF subsidiary could throw interesting scenarios.

CanFin was making presentations to several investors in the past couple of weeks to facilitate CanBank, its parent Bank to exit.

Now those investors potentially got another choice. An HFC growing at a fast pace.

(vipin111) #272

Just like ordinary investors who sell their winners in a stock market and hold on to their losers PNB will do the same. It is easier to sell out PNB hfc than give a stake to privatize PNB and bring some better governance (which should be the case). All the more reason for PNB hfc holders to hold on or add .

(Jaclyn) #273

I was thinking on this comment if it entirely correct. Probably it is not in my view. Bajaj Finance with a RoA of 3+ (don’t have the exact number) still gives out 20+ RoE. That means a leverage of around 6-8 times.

But Can Fin which has 2+ RoA hits RoE of 23+ with a leverage of 10-11 times.

So simply by looking at RoA can we conclude BF is better than CFH in turn is better than PNB Hsg? I don’t think so.

Other parameters like risk management, growth rate etc along with RoE and RoA should help us to judge a financial company and come to some conclusion, but not by ignoring RoE.

More experienced VP’s can comment if this understanding has some faults.

(Amitayu) #274

You are doing a very basic Mistake. You are comparing completely two different Line of business (Just like comparing apple with Oranges). Bajaj Finance does Consumer Financing + SME Financing + LAP + Unsecured Lending + Credit Cards (Driver of Higher ROA) where as Canfin ,PNB HFL does Mortgage financing (Secured Lending).PNB HFL is now in expansion mode (Branch establishment,employee cost etc) which was done by Canfin 2-3 years ago. Once this C/I, Opex will stabilize, ROA and ROE will be much higher .There are many threads already available in VP forum, ‘‘How to analyze NBFC Comapanies’’, Gruh Thread ,Canfin Thread , Bajaj Fin etc.Go through all those forum thread from top to bottom, your concepts will be clear. IMHO,nobody can help you to build your conviction , you have to learn yourself and build your conviction and take decision yourself during bad time.

(Jaclyn) #275

Appears like you have misunderstood me. My question is not about my conviction on PNB Hsg or its quality.

I do differentate the the three companies. In fact I don’t even equate CFH with PNB Hsg as their customer segmentation appear to be different. Both of them can co-exist on the same area without biting into each other. That is my view.

But it is about judging a NBFC solely based on RoA at the exclusion of RoE.


The single point agenda is to “buy low, sell high”. That leads to the question: How do we identify the lows and highs? I think that the low is when the price of the asset/share is less than its value. Similarly, high is when the price is higher than the value. Yes, it is simple.

The key here is arriving at the value of the asset/share. Comparison with other assets (relative valuation using ratios like RoA/RoE), looking at macroeconomic variables, etc. are the thumb rules that people use to arrive at the value of the asset/share. If you like to hold a concentrated portfolio, then you can study the stocks in detail and value them. Valuing the asset directly by quantifying the expected cashflows and cost of capital is superior to relative valuation. I consider valuing the company by projecting the cashflows for the expected high growth period (5 to 10 years) and taking a terminal value after this expected high growth period to be superior to relative valuation. You do not need to bother much about the thumb rules once you have done the hard part of valuing the company. I think that you have already done the hard part of delving into the details and valuing the companies.

There may not be exact comparables of companies to rely on relative valuations. Also, when we are comparing similar looking companies to arrive at decisions, we are intuitively thinking about a pair strategy - buying the company that we think is trading cheap and selling the other that is trading expensive. However, in reality, we do not execute a pair strategy. Consider a scenario where we invested in the company that was trading at cheaper valuations and ignored the company that was expensive but offered the same value. Afterwards, the industry/market went through a bad phase and the share prices declined. We would lose money even if the value of the company that we did not invest in declined more than the company that we invested in. Relative valuation in an industry does not give insights about the valuation levels of the overall industry. However, if we value the company directly, then we are less prone to such problems. In short, I consider relative valuation mostly lazy investing.

(Rajarshi) #277

Well PNB HFL mgt has provided some clarifications on the aspersions being cast upon the functioning and management of PNB HFC. This calirification should answer the doubts for people who were commenting “baap jaisa beta”.
In no 2 ways they have clearly stated that other than sharing a common brand with PNB it has an arm’s length relationship with PNB. PNB Housing Finance limted network,data center, branch network, customers as well as raising of financial resources is indpendent and no way related to PNB.

(zomby) #278

PNB cannot reduce its stake below 20% before Nov 2019.

(Jaclyn) #279

This post by Yogesh has the answer to my question. Thanks to everyone who provided their perspective.

(Amitayu) #280

Good Insight in Jeffferies Report , How there is Near-Term Headwinds for plain vanilla Housing Finance Companies and specially which have higher share of salaried Housing Loans due to increasing Bond yield.

It is actually good strategy of PNB Housing Finance managment, that they diversified asset portfolio (Housing Fin,LAP,LRD,Construction fianncing) which will help them to maintain spread and NIM when interest cycle is inching up. Same was echoed in Indiabulls Housing Fin Q3 Concall

Also as per that report , PNB Housing Finance Ltd. ,with a higher share of non-salaried loans at nearly 40 percent may be less impacted due to this bond yield rise.

But have to watch the coupon rate of upcoming IFC 400M $ masala bond to get an idea about the future spread and NIM

Discl: Invested

(Rajarshi) #281

Well some more developments to counter “Bap Jaisa Beta” Crisil and ICRA ratings for PNB housing remains unchanged.

(MD Razi G Haider) #282

It seems Rising Bond yield will affect the growth .

(Amitayu) #283

Bond is not only the option to raise capital for PNB Housing finance. There are other options also like Fixed deposits ,Banks Term Loans,ECBs, NHB Refinance etc . Deposits helps alot during this type of situation.


(Hitesh Patel) #284

Management of PNBHF has guided for borrowing mix in following nature

Deposits 25%, NCD 45%, CP 15-18 %, Banks 10%, NHB 5%.

Management has also indicated the spreads to remain between 195 to 210 bps.

The key driver of improvement in ROA going forward should be cost to income ratio.

About the parentage of PNB and its impact on PNB HF, one only needs to listen to the concall and hear the CEO Sanjay Gupta to get an idea about the kind of management running the business. He comes across as a veteran in the field who knows his business.

Sometimes opportunities come amidst adversities and those who seize these opportunities can gain a lot.

(atul1082) #285

Thanks @hitesh 2710.I believe NIM of pnb housing is around 3%.Therefore how is spread lower than nim.i presume both r same as per definition

(Jaclyn) #286

Just to add to Hitesh Bhai’s words, the processing hubs which got added recently are at an utilisation of 40-45%. In an year’s time that would nearly double. Similarly the office space has increased by nearly 50% from the start of the year. So when the optimum use of these happen in the coming days, the CoI will start to improve.

As for the loans nearly 73% of the loans are variable. When the borrowing cost increases the same will be passed on keeping the spread.

The NIM might have peaked or may have one quarter more in the rising interest scenario.

(Amitayu) #287

NIM and Spread are completely different financial parameters.

NIM =(interest income-interest expense)/interest earning assets
whereas spread =(interest income/interest-earning assets)-(interest expense/interest-bearing liabilities)

Now suppose if
interest income = Rs 150 cr
interest expense - Rs 80 cr
interest earning assets- Rs 2250 cr
interest bearing liabilities -Rs 2000 cr

NIM=(150-80)/2250 = 3.11%
whereas Spread= (150/2250)-(80/2000) =2.66%

(atul1082) #288

May thanks for detailed explanation​

(Peabody) #289

Thanks. For my understanding what does Spread represents in terms of message and NIM. Both the terms are frequently used in analysing HFC counters