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    PNB Housing

    PNBHOUSINGGood
    Financial Services·24 Oct 2024
    Management Summary

    PNB Housing delivered a strong Q2 FY25 performance characterized by robust retail growth and significant asset quality improvement. The company is successfully pivoting toward higher-yield segments, with the Affordable (Roshni) and Emerging Market segments now contributing 31% of total retail disbursements. Management expressed high confidence in achieving its FY27 targets, supported by a declining cost of funds and a strategic re-entry into the corporate lending space.

    Highlights

    8

    • PAT grew 23% YoY and 9% QoQ to ₹470 crores in Q2 FY25

    • Retail Loan book increased 16.2% YoY to ₹67,970 crores, nearing the 17% annual guidance

    • Affordable segment 'Roshni' loan book crossed ₹3,000 crores, growing 300% YoY

    • Gross NPA improved significantly by 11 bps sequentially to 1.24%

    • Net Interest Margin (NIM) improved to 3.68% from 3.65% in the previous quarter

    • Disbursements reached ₹5,341 crores, representing a 28.2% YoY growth

    • Cost of borrowing reduced by 8 bps sequentially to 7.82%

    • Return on Assets (RoA) improved to 2.54% for the quarter

    Key financials

    Single quarter

    06 metrics
    1. 01Retail Loan Book₹67,970 Cr+16.2%YoY
    2. 02PAT₹470 Cr+23%YoY
    3. 03NIM3.7%
    4. 04GNPA1.2%
    5. 05RoA2.5%

    Segment breakdown

    • Affordable (Roshni)₹2,959 Cr4.4%
    • Emerging Market₹12,545 Cr18.6%
    • Prime₹52,000 Cr77.0%
    Donut· Share of Loan Book

    Guidance & targets

    6
    CategoryTargetPriority
    Volume
    Retail Loan Book Growth
    17%
    		High
    Volume
    Affordable Loan Book
    ₹15,000 crores
    		High
    Volume
    Total Retail Book
    ₹1 lakh crore
    		High
    Margin
    NIM
    3.5%
    		Medium
    Profitability
    Steady-state Credit Cost
    30 bps
    		Medium
    Capacity
    Branch Expansion
    50 branches
    		High

    Risks & concerns

    4
    RiskSeverity

    NIM Volatility from Rate Cuts

    Management is baking in the impact of potential RBI rate cuts into their 3.5% NIM guidance. — Both acknowledged

    medium

    Higher Credit Cost in Affordable Segment

    Affordable segment credit cost is expected at 50 bps, significantly higher than Prime (18 bps). — Management acknowledged

    medium

    Corporate Book Re-entry

    Management plans to keep corporate exposure below 10% and focus on smaller ticket sizes (₹200 Cr) to avoid past issues. — Analyst downplayed

    low

    Areas of Evasion(1)

    • Slightly vague on the exact timing of the corporate book restart beyond 'next few months'.

    Q&A highlights

    3

    “We have vacated the sort of ultra-HNI kind of customer segment. We see the possibility to charge better premiums when you go down the income segment.”

    Explains how the company is maintaining margins in a highly competitive 'Prime' market by shifting toward mass-affluent customers.

    asked by Abhijit Tibrewal, Motilal Oswal

    2 min read5 chapters

    Detailed Narrative

    01

    Affordable Housing (Roshni) Emerges as Growth Engine

    The 'Roshni' segment has achieved a significant milestone, crossing a ₹3,000 crore loan book within 22 months of operation. This segment grew 300% YoY in loan book and 68.5% YoY in disbursements during Q2 FY25. Management is targeting a ₹5,000 crore book by the end of FY25 and ₹15,000 crore by FY27. Incremental yields in this segment have reached 12%, significantly higher than the company average.

    02

    Strategic Pivot in Prime Segment Yields

    To counter intense competition in the Prime segment, PNB Housing is shifting its focus from ultra-HNI customers to the mass-affluent segment. This move has allowed them to increase incremental yields in Prime by 15 basis points over the last six months. The average ticket size in Prime has been moderated to ₹35 lakhs, down from historical levels where ₹5 crore+ cases were common.

    03

    Asset Quality Reaches Multi-Year Highs

    Gross NPA improved to 1.24%, down from 1.35% in Q1 FY25. The company is seeing strong recovery momentum, collecting ₹48 crores from the retail written-off pool this quarter compared to ₹28 crores in Q1. Management expects this recovery trend to continue for the next 4-5 quarters, supported by a written-off pool of ₹1,250 crores in Corporate and ₹500 crores in Retail.

    04

    Controlled Re-entry into Corporate Lending

    PNB Housing plans to restart its corporate business in the coming months with a vastly different risk profile. The new strategy focuses on construction finance for Category A and B developers in select cities, with ticket sizes capped around ₹200 crores (down from ₹350-400 crores previously). The corporate book is intended to remain below 10% of the total portfolio to maintain a retail-heavy balance sheet.

    05

    Operational Efficiency and Digital Transformation

    The company is leveraging technology to drive productivity, with 80% of the Affordable segment onboarding now digitized. OPEX grew 19% YoY to ₹199 crores, primarily due to the addition of 100 branches in the previous year. However, management expects OPEX to AUM to settle between 1%-1.1% as these new branches mature and achieve economies of scale.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.