PNB Housing — Q2 FY25 earnings call

Call held 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

  • 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

  1. Retail Loan Book ₹67,970 Cr +16.2%YoY
  2. PAT ₹470 Cr +23%YoY
  3. NIM 3.7%
  4. GNPA 1.2%
  5. RoA 2.5%
  6. Disbursements ₹5,341 Cr +28.2%YoY

What they filed

Q1 FY27: revenue up 9.0%, net profit up 4.3% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,879 1,942 2,022 2,076 2,128 +13%2,119 +9%2,182 +8%2,263 +9%
Net profit470 483 550 534 582 +24%520 +8%656 +19%557 +4%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Loan Book
₹67,504 Cr Total
  • Prime ₹52,000 Cr 77.0%
  • Emerging Market ₹12,545 Cr 18.6%
  • Affordable (Roshni) ₹2,959 Cr 4.4%

Guidance & targets

Volume

  • Retail Loan Book Growth Volume · FY25 · High confidence 17%
    This is against the stated guidance of 17% for the Financial Year.

    — Girish Kousgi, MD & CEO

  • Affordable Loan Book Volume · by FY27 · High confidence ₹15,000 crores
    It is a significant milestone towards the stated target of Rs. 15,000 crores Affordable loan book by FY’27.

    — Girish Kousgi, MD & CEO

  • Total Retail Book Volume · by FY27 · High confidence ₹1 lakh crore
    reaching 1 lakh crore by FY '27 with a mix of 15% in Affordable, 25% in emerging and the balance in prime.

    — Jatul Anand, Chief Credit & Collections Head

Margin

  • NIM Margin · FY25 · Medium confidence 3.5%
    We reiterate our guidance is 3.5% on NIM. We will be able to manage NIM at the current level for the next couple of quarters.

    — Girish Kousgi, MD & CEO

Profitability

  • Steady-state Credit Cost Profitability · Medium Term · Medium confidence 30 bps
    in the medium term this is expected to be around 30 bps as earlier guided.

    — Jatul Anand, Chief Credit & Collections Head

Capacity

  • Branch Expansion Capacity · FY25 · High confidence 50 branches
    we plan to open 50 branches in this financial year with the majority to be opened for Affordable business.

    — Girish Kousgi, MD & CEO

Risks & concerns

  • NIM Volatility from Rate Cuts

    medium

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

    Both acknowledged

  • Higher Credit Cost in Affordable Segment

    medium

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

    Management acknowledged

  • Corporate Book Re-entry

    low

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

    Analyst downplayed

Areas of evasion (1)

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

Q&A highlights

2 direct
Drivers of Incremental Yield in Prime Segment Direct
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

Steady-state Credit Cost Expectations Direct
On Prime, we are expecting on a steady-state credit cost of about 18 bps, on Emerging around 23-24 bps. On Affordable... we are expecting about 50 bps.

Provides granular risk expectations for the new business segments, showing that while Affordable has higher yields, it also carries higher credit costs.

Asked by Renish, ICICI

NIM Trajectory and Dragging Effects Partial
We also have a repricing policy where we try to retain the customers allow and switch from a higher interest rate to a slightly lower interest rate. Now these things would pull the yield down... I think this balancing would play out in the next 2-3 quarters.

Highlights the tension between mix-driven yield improvements and the 'dragging effect' of customer retention through lower rates.

Asked by Nikhil Kumar Agarwal, VT Capital

2 min read 5 chapters

Detailed narrative

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.

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.

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.

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.

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.

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