PNB Housing Fin - Fast Growing HFC

[amitayu]

Wow Numbers by PNB Housing Finance, Disbursement Up 43%,NII up 51%,PAT Growth 49% with superb asset quality, NIM at 3.38% (+14bps)

HFCs actually Increasing their Share from Banks in Home Loan Portfolio Steadily by maintaining Superb NIM despite of Higher Yield

Huge opportunity in Mortgage Market which is ramping up actually in fast pace

Discl: Invested

[Hao-ming]

According to the press release by the company to bse, the pat for the financial year was 523.73 crore… Total number of shares is 16.56 crore… So the eps comes up-to 31.62 / share… Then why has the company mentioned the eps is 36… Is it a printing error?? Coz even in screener and other websites the eps shown is around 31… Someone explain??
Discl - invested …

[RamanTiwari]

The difference is due to equity dilution, number of shares increased during ipo… you can get 36 by summing EPS for each quarter, rather than getting 1 number for the year

[msahani]

Hello All,

Please can someone explain the difference b/w AUM and Loan Assets and how are these terms relevant in context of the HFC sector?

Thanks

[mparadkar]

Branch expansions to aid growth; retail portfolio growing strongly: PNB Housing Fin

Branch expansions to aid growth; retail portfolio growing strongly: PNB Housing...

Disc: Invested

[umang_1991]

Why the market is ignoring this stock. Such good numbers fastest growing HFC still trading at a discount to Canfin?

[Peabody]

It is not trading at a discount to Canfin rather at a premium. P/B is 10.12 and Canfin 8.44

[FocObs]

Its very good that the MD has promised that their Non-Housing loans would never go north of 30% of portfolio.

For a company that is growing its profit at 50% Y-o-Y, Its properly placed and priced with P/E 40+, P/B 10+

[poddy]

PNB HF BV is 336.10 and CanFin is 404. P/B is 4x for PNB HF and 6.88x for Canfin

[amitsethiya4u]

The new TTM eps is 36 and book value is 336 so apt ratios are pe 37.5 and p/b is 4. EPS and book value taken from their latest release.

[FocObs]

Just checked their latest Q4 investor presentation. Thanks for throwing light on the same.

[sanketkulkarni1987]

In my opinion there are few points where can fin scores over pnb housing

1. Borrower profile - with almost all focus on salaried and non salaried class, can fin “risk” can be considered lower
2. Housing loans % - 88% of loan book is made up of housing loans for can fin … for pnb housing this % is slightly above 70% … again, lower risk for can fin
3. Clearly communicated vision to the street - Can fin has clearly communicated its vision 2020 and has achieved the intermediate milestones in the last few years … pnb housing doesn’t provide any guidance (as far as I know) … hence, confidence on can fin’s growth may be higher
4. Average cost of borrowing, NIM %, cost to income ratio, ROA, ROE - better for can fin as compared to pnb housing for last 3 years

In my opinion, both are very good hfc’s growing at scorching pace. But between the two, can fin is better.

Disc: invested in pnb housing and can fin homes. Higher allocation to can fin. Views might be biased

[drrakesh]

Pnb HSG Fin Earnings Call Transcript Q4FY16-17

PNB-Housing-Earnings-Call-Transcript-for-Q4-and-FY-2016-17.pdf

[vijaygawde]

Sohn India 2017

Ramdeo Agarwal: PNB Housing Finance

• Govt thoroughly focused on this space.
• Only 27 cos in lakh crore mkt cap
• Need certain foundations and tailwind. When they start, create massive wealth in long term.
• Mortgage to gdp India lowest at 9% vs >25% in developing countries
• Tailwinds strong since pvt sector banks failed to scale up and capture share of mortgages.
• Hsg fin growing at 22% compounded
• Govt aiming for pucca houses for all
• Gross npa in mortgage at 0.8% vs micro finance or cv or rural or gold loan.
• PNB hsg fin
• Large psu brand. But run by carlyle not pnb. Sound systems processes
• High quality underwriting with scale ROTA stable. ROE down due to ipo
• Mgmt led by Sanjay Gupta ex HDFC
• AAA rating by Crisil
• Tgt to double assets by FY20
• At Avg Rs 10 lacs opportunity is 50 lac cr
• Co grown at 52% cagr in last 4 yrs
• PAT growth 34% cagr
• Valn : trading at 37x fy17 pe.
• Eps 218 in next 7 yrs by 2024 see stock at 5450 on exit pe of 25x

Risk: quality of underwriting going down

[rishi_j15]

Hi Vijay,

Thanks for sharing details, out of curiosity where did you get this information from.

Disclosure - Invested in PNB Housing

Regards
Rishi

[Yogesh_s]

Here is my quick projections based on company’s current fundamentals, industry averages and my projections.

Few notes:

• All numbers are per share (except ratios) as that is what matters to shareholders.

• These are long term projections and not annual point estimates.

• I am assuming further issuance of shares to fund growth as financial companies have to maintain capital adequacy ratios.

• Even after factoring a 10 Yr CAGR of 23% & 21% in earnings and assets resp. share price is expected to grow at a CAGR of 13% mainly because much of this expected growth in assets and earnings is already priced in.

@vijaygawde

Tgt to double assets by FY20

Doubling assets in 3 years will result in CAGR of 25% (approx) which is slowdown from 45% growth rate in last 3 years. Canfin has also seen a slowdown in its growth rate from 51% to 25% over last 5 years. Look at my post below.

Canfin homes ltd

To get to 35,000 Cr loan book by FY20 they will need a CAGR of 38%. If the target is to be achieved by FY 21, it will need a CAGR of 27%. Both are higher that their current run rate. Not only current growth rate is lower than their own target, it is also decelerating. Growth in loan book has dropped from 51% in FY 13 to 25% in FY 17. [image] Source: Company IR Presentations. With everyone getting into home loan business and targeting salaried home buyers, Canfin will have tough time growing…

• If growth is expected to be 25% oer next 3 years despite industry tailwinds, growth will most likely taper off from there. I think it is conservative to assume that growth will taper off to 15% from year 4 to 10.

@vijaygawde

Eps 218 in next 7 yrs by 2024 see stock at 5450 on exit pe of 25x

• This looks optimistic to me. For EPS to grow to 218, company’s ROE has to be in the mid 20s whereas it only has earned average 15% ROE in last 3 years. ROE over next 3 years will be lower as equity has gone up substantially after IPO. It will take long time for all this additional equity to generate returns.
• At 25 times PE, this stock will sell at a P/B value of over 4 and that will make it more expensive than HDFC in terms of P/B. Based on my projections, stock will sell at P/B 3.2 which is still expensive for a commodity lender that is earning a low ROA and ROE.

@vijaygawde

Risk: quality of underwriting going down

At least there is a mention of some risk factors. PNB in order to grow its loan book is lax on credit quality. this can come back to bite.

[zulfi]

@Yogesh_s

B in order to grow its loan book is lax on credit quality. this can come back to bite.

good observation vijay ji, has mgt officially given loan book target or is it projection of some brokerage

[mparadkar]

some details can be found here http://alphaideas.in/2017/06/05/notes-sohn-india-conference-2/

[Mridul]

Yogesh bhai…thx for the detailed writeup… may I know what’s it opinion on every finance company getting into housing finance. Yes you have said growth is going to taper going fwd…its already tapering …sectoral tailwind is strong but excess competition can ruin the party in a few years. everybody is gung ho about housing finance n understandably so as this is the safest of the lending segment. can the leaders in this segment continue posting 25% cagr going forward…for how many years? or the growth rate will come down much sooner than anticipated. everyone says we will double our loan book in 3 years…

Makes me think how large is the actual opportunity size? how fast is it growing? Ur take?

[Sandeepg]

Attaching the screenshots from the webinar conducted by CRISIL today… Hope it helps