PNB Housing Finance IPO hits Dalal Street: 10 things you must know

PNB Housing Finance, the subsidiary of Punjab National Bank(PNB) on Tuesday, launched its initial public offering (IPO) to raise Rs 3,000crore.

The issue, that closes on Thursday, can be subscribed in theprice band of Rs 750-775.

Detailing about the objects of the issue, the Red Herring Prospectusof the company said it will help augment company's tier-I capital base to meetthe future capital requirements which are expected to arise out of growth ofPNB Housing's business and assets, primary the housing and non-housing loans.The money garnered through IPO would also help the firm comply with NationalHousing Board directions on minimum capital adequacy ratio, which consists oftier-I and tier-II capital.Below are ten points you must know about the PNB Housing Finance IPO:

1. PNB Housing Finance is the 5th largest HFC (housingfinance company) in India by loan portfolio as of September 30, 2015, accordingto the IMaCS Report.
2. Post IPO, the two promoters of the company, PunjabNational Bank (PNB) and Carlyle Group, L P, would together shed around 23.5 percent stake in PNB Housing.
3. The entire 3.9 crore shares on offer (at upper end) arethrough fresh issue with NIL amounts towards any offer for sale.
4. At the higher price band of Rs 775, the issue is valuedat 2.5x its post-dilution adjusted book value of Rs 311 per share on FY16basis.
5. "Considering the healthy financials, top-quartilereturn ratios and overall growth in the housing finance sector backed bygovernment's "Housing for All" and "Smart Cities" program, we believe thecompany offers an ideal investment opportunity. Hence, investors can subscribeto the issue," said brokerage Centrum Broking.
6. "PNB Housing's GNPAs were 0.22 per cent in FY16. Fora company with 30 per cent non-housing portfolio (LAP, LRD etc), the assetquality is too good to sustain, if peers such as HDFC and Dewan Housing Finance,are considered more representative of normalized levels," said IDBICapital. The brokerage recommends 'subscribe' on the issue.
7. While caution is warranted on asset quality, IDBI Capitalexpects it to be cushioned by PNB Housing's improving earnings profile. Itshould also be noted that PNB Housing's growth shall get more granular as it'sticket sizes drop due to higher originations from Tier 2 centres. This shouldresult in a better spread of credit risk.
8. Angel Broking believes strong management with freshcapital should help maintaining the growth of the company. MD Sanjay Gupta  along with the newly hired professionals fromprivate sector has been the key behind the growth.
9. The company has delivered a phenomenal nearly 61 per centCAGR in loan book over FY12-16, which has resulted in 43 per cent CAGR in PATgrowth. The IPO proceeds will enable the company maintaining the growthmomentum albeit with a lower rate.
10. "PNB Housing is all geared up for its next leg ofgrowth and has the potential to become a significant player in the Indianmortgage business. Looking at the quality of management, which can drive thegrowth, we recommend a 'subscribe' to the issue," said Angel Broking.