PNB Housing Fin - Fast Growing HFC

Business Overview:
PNB HFL are the fifth largest HFC in India by loan portfolio as of September 30, 2015 with the second largest amount of public deposits in an HFC in India as of March 31, 2015, according to the IMaCS Report. Parent and Promoter is Punjab National Bank (“PNB”), one of the largest nationalized banks in India. Over the previous five years, PNB HFL have implemented a business process transformation and re-engineering (“BPR”) programmed, which has contributed to them becoming the fastest growing HFC among the leading HFCs in India as of March 31, 2015, according to the IMaCS Report. In 2009, PNB sold 26% stake to Destimoney Enterprises (now a Carlyle Group entity). In 2012, Destimoney Enterprises increased its stake to 49% (Before IPO). Loan portfolio grew at a CAGR of 61.76% from ₹39B as of March 31, 2012 to ₹271B as of March 31, 2016.

Product Offered:

PNB HFL offer customers “housing loans” (71%) for the purchase, construction, extension or improvement of residential properties or for the purchase of residential plots, and “non-housing loans” (29%) in the form of

  1. loans against property(“LAP”) to property-owning customers through mortgages over their existing property and any additional security, if required;
  2. Non-residential premises loans (“NRPL”) for the purchase or construction of non-residential premises;
  3. lease rental discounting (“LRD”) loans offered against rental receipts derived from lease contracts with commercial tenants;
  4. Corporate term loans (“CTL”) which are general purpose loans to developers and/or corporate for purposes of on-going projects or business needs.

As of March 31, 2016, Among the Housing Loan Book , retail housing loans constituted 87.10% of total housing loan portfolio i.e 61 %. The average loan size (at origination) of retail housing loans as of March 31, 2016 was ₹3.20 million, with a weighted average loan-to-value ratio (“LTV ratio”) (at origination) of 65.92%. As of March 31, 2016, Among 29% of Non Housing Loan , retail non-housing loans accounted for 23% .
The average loan size (at origination) of retail non-housing loans as of March 31, 2016 was ₹5.58 million, with an LTV ratio (at origination) of 46.25%.

A Different Operational Model

PNB HFL conduct operations through an operating model which, as of March 31, 2016, included 47 branches across the northern (40%), western(30%) and southern (30%)regions of India and 16 processing hubs (which include three co-located zonal offices) and our central support office (“CSO”) in New Delhi. PNB HFL branches act as the primary point of sale and assist with the origination of loans, various collection processes, sourcing deposits and enhancing customer service, while their processing hubs and zonal offices provide support functions, such as loan processing, credit appraisal and monitoring, and their CSO supervises PNB HFL’s operations nationally. PNF HFL’s enterprise system solution (“ESS”) integrates all activities and functions their organization under a single technology and data platform, bringing efficiencies to our back-end processes and enabling them to focus their resources on delivering quality services to their customers. Their branches, processing hubs, zonal offices and CSO are supported by their centralized operations (“COPS”) and central processing centre (“CPC”), which provide centralized and standardized backend and administrative activities, payments and processing for their business, relying in turn on their ESS. PNB HFL’s distribution network included over 5,000 channel partners across different locations in India as of March 31, 2016, including their in-house sales team as well as external direct marketing associates (the “DMAs”), deposit brokers and national aggregator relationships with reputed brands.

Stable Margin with Diversified Loan Sourcing :

Given the diversified loan portfolio with significant share of non-retail loans and self employed customers, PNB HF has enjoyed high loan yields. While it currently earns~10.5% yield on home loans, it earns around 100-300bp more on LAP. In addition,self-employed customers are charged 75-150bp more on housing loans due to the inherent volatility of their cash flows. At the same time, the company has worked to diversify its liability profile.
Over the past four years, the company significantly reduced share of bank borrowings from 34% in FY14 to 6% in FY16. The company is a deposit-accepting HFC, and retail deposits comprise ~30% of its total borrowings. With the reduction in share of bank borrowings and the corresponding increase in share of market borrowings, the company has managed to reduce its cost of funds significantly. As of and for the Fiscal Year ended March 31, 2016, total borrowings PNB HFL are ₹261B and average cost of borrowings was 8.67%. PNB HFL have access to diverse sources of liquidity, such as term loans from banks and financial institutions, non-convertible debentures (“NCDs”) and other debt instruments, public deposits, external commercial borrowings (“ECBs”), commercial paper, refinancing from the NHB and unsecured, subordinated debt, to facilitate flexibility in meeting funding requirements. As of March 31, 2016, PNB HFL’s operations are principally funded by borrowings from banks and financial institutions, domestic debt markets, public deposits and the NHB, which accounted for 9.78%, 55.07%, 27.20% and 7.95%, respectively, of their outstanding borrowings. In addition, due to short-term and long-term credit ratings, PNB HFL have access to certain fund raising opportunities in the capital markets. PNB HFL also offer a broad range of public deposit products of different tenures with various interest rate options.


PNB HFL’s gross NPAs, as a percentage of total loan portfolio, are 0.20% as of March 31, 2015, which was the lowest among the leading HFCs in India, according to the IMaCS Report, and 0.22% as of March 31, 2016. As of March 31, 2016, 2015 and 2014, provision coverage ratio (i.e., the proportion of gross NPAs for which provisions had been made) was 36.25%, 66.82% and 51.47%, respectively. PCR decreased in Fiscal Year 2016 primarily because PNB HFL decreased provisions for NPAs to the minimum requirement under the NHB Directions.

Key Performance Metrics

We should Keep in Mind that after recent IPO, High leverage will be corrected so ROA,NIM will improve.

Key risks:

  1. Loan portfolio is largely unseasoned .The company enjoys a superior GNPA of 0.2%. However, this is also due to the fact that it has grown very fast in the past two years. As a result, the portfolio is not fully seasoned to reflect true asset quality. My understanding is It has been observed that housing finance sector itself generates very low NPA and tested Business Model in past many years, so this risk may not be alarming but please do your own due diligence
  2. Before doing IPO PNB HFL was ‘Highly leveraged’ (It was highly leveraged @ 15 times so there was fall in CRAR which triggered NHB inspection in 2015)so the ROA was remained compressed by 75 basis point . But after this 3000 cr Large IPO , the Leverage is corrected and Margin,ROA will improve significantly. As per MD Sanjay Gupta “Going forward, we will maintain the business at the usual leverage of 9-10, and at 12 times we will raise capital in future. This is the management philosophy.

Valuation : In current Price company is valued at ~2.5x FY17 H1BV (Post IPO current BVPS is 325), which is still cheaper than HDFC (around 4.5).

Future Focus Area

PNB Housing has launched a special scheme - ‘Unnati Home Loans’ targeted at customers from lower and middle income segment to enable them realise their dream of owning a home at affordable Equated Monthly Instalments (EMIs). Sanjaya Gupta, Managing Director, PNB Housing said, “Unnati is a focused Endeavour to reach out to employees of indigenous establishments and smaller SMEs. We are committed to help in bringing their dream of owning a home closer to them by providing such customized credit schemes. At PNB Housing, we extensively support the government’s vision of ‘Housing for All by 2022’ and ‘Unnati’ supports the low income groups. We are eager to be a partner in the development of aspiring Indians and firmly believe that similar initiatives will be an important contributor to nation building.
The beneficiaries of ‘Unnati’ Loan Scheme will be individuals residing in peripheries of Tier I cities as well as those in living in Tier II and III cities. ‘Unnati’ home loans can be availed by the salaried and self-employed professionals for a loan amount of up to INR 25 lacs.

Discl: Invested and Biased.Data taken from DRHP.


Dear @amitayu,
You mention this in your write up “In current Price company is valued at ~2.5x FY17 H1BV (post IPO)”.

The company’s market capitalization today is Rs13734crs at a price of Rs829. The Sep16 end networth is Rs2379crs. The P/BV is 5.8x. I am wondering what is wrong with my calculation. Or is there a typo in your write up?

You have not added 3000 cr IPO fund with the Equity . And now outstanding share is 16.55 cr So BVPS will come near 325.

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Thanks for pointing out the error in my calculation

Do you have any comparison of Can Fin, LIC HF, GIC HF, PNB HF, Gruh and Repco by any chance in term of valuations and financial ratios, growth etc?

Further do you have some comparison of what % of loans of each company is housing loans, how much is LAP and what is average size of each home loan in these companies.

Thanks for starting this thread, to me its a no-brainer to invest in PNB housing if you are bullish on HFCs:

  • It is the fastest growing HFC with very low NPAs and reasonable return ratios
  • Carlyle group adds to the trust(generally lacked in a PSU)… they earlier invested in Repco home for 6-7yrs and then exited post IPO and made multi-bagger returns and led Repco to the growth path

MD in his interview on CNBC stressed that NPAs would stay lowest despite demonetisation

Disc: Invested

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The whole IPO fund might not be added to Reserves .
Is it true to assume everything gets added to Reserve and enhance the book value? Its just a question

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Good post @amitayu

I have following comments

  1. It is fastest growing, market will recognise this over a period of time
  2. Ticket size is higher 32 lakh, this size demand is slowing in city
  3. It still has yet to see one cycle, so we don’t know how NPA will do
  4. Nim is low
  5. Management quality is superb
  6. Valuations are reasonable/undervalued for 35% growth
  7. Now we have too many HFC stocks to play this sector

Disc : tracking closely

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I didnt invest in pnbhf for two reasons. The loan book is very new just two years old average age of loan book. This is a very risky proposition as high probability of defaults as low commitment from home owners early in the tenor.

Secondly there are some book padding issues. Cost of funds lower than hdfc and lichf. How is that even possible as the two are better rated.

The only positive is carlyle is an investor. And they have done well with multiple hfs in the past. Nikhil Mohta of carlyle is super smart…

I will wait for one two quarters of post ipo numbers to look again further


The other thread related to Canfin Homes has relative comparison between all all HFCs.I found it very useful.
Dislosure:Invested during IPO and added during recent corrections

Hi @sinha124 .Here is my following points

  1. Yes, The main reason of higher ticket size because PNBH’s partly due to the fact that it has been so far largely present in the urban areas. As they already started foray into affordable housing and Tier 2 and Tier 3 cities , the ticket size look like set to decrease from current 32 Lacs ,

  2. NIM was low due to higher leverage and will see improvement post fund raising. Also As the business scales up the operating cost structure(which is relatively higher than other HFCs) would also get reduced.

  3. Yes agreed the Loan Book is not fully seasoned . I believe PNBH will be able to control its credit cost and have NPAs at par with other pvt sector players due to high quality of management.

Discl: Invest and Biased.

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A comparison is available here


The share of risky construction finance(real estate developers) loans has increased from 5.8% in FY14 to 9.5% as on 30th June 2016. Higher defaults due to slippages in this segment due to current real estate recession(and demonetisation impact) can have big impact on NPA. Any thoughts how they are managing?

“High Quality Management”…I will take this with a pinch of salt. Quality management is not a thing you want to associate with PSU lenders

If that’s the case why 3000 crs is not added in Reserves?

@Ankchandak Where did you get the information that 3000 crs is not added in Reserves? Before providing any conclusion at first do read the DRHP document and also do your homework. It will help you and us both.

@umang_1991 Is it applicable for Canfin Homes Management Also?

Discl: Invested in Canfin and PNBHFL .

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I will read the DRHP thoroughly and come back to , Regarding Reserve, from the latest balancesheet along with H12017 results you can check the reserves6BE12728_2EB1_4F88_9BD8_BDE517E0E04F_155740.pdf (465.6 KB)

My understanding is book value is Equal to Shaheholders fund mentioned in balance sheet .
And its mentioned as 2379 Crs while the current market cap is 13,765 .
So based on that P/B comes as 13,765/2379 ~ 6
Is my calculation is wrong based on the latest balance sheet .
Or is there something I am missing?

Wasnt the ipo post Q2, so how did you get the latest balance sheet?

It will come with Q3 results.

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Oh, My bad.
@amitayu sorry for the trouble :slight_smile:

No Issue at all :slightly_smiling_face:. To make this thread more informative we need to research more on this company and will exchange our views .