PNB Housing shares: Up 90% from 52-week low! Here's why Motilal Oswal sees over 30% upside potential

Shares of PNB Housing Finance have recovered around 90 per cent from its 52-week low of Rs 407. The stock hit its 52-week high of Rs 913.95 on January 25, 2024.

In its recent report on top research ideas, Motilal Oswal has reiterated its 'Buy' rating on PNB Housing stock with a target price of Rs 1,000. It expects PNB Housing to deliver a PAT CAGR of 26% over FY24-26 and a RoA/RoE of 2.5%/13.0% in FY26.

The brokerage firm noted that PNB Housing Finance plans to transform from a prime housing financier into a lender that offers a wide bouquet of mortgage products across cohorts of product and customer profiles. In addition to its existing affordable housing loans (Roshni) vertical, it will also enter the emerging market vertical from FY25.

"The company has restructured its business model and prioritized the retail segment by reducing corporate loans in the overall loan mix to 4% in Dec'23 from 21% in Mar'20, through down-selling, recoveries, and ARC sales," it added.

Motilal further added that PNB Housing has made notable enhancements to its collection framework, including the introduction of digital channels to streamline the collection process. Improvements in GS3 should be sustained, and we model credit costs of 30bp each in FY25E/FY26E. It has a written-off pool of Rs 1700 crore and Rs 500 crore in corporate and retail, respectively, it said.

Recently, the rating agency ICRA upgraded the housing finance company's non-convertible debentures (NCDs) rating to ‘ICRA AA+’ from ‘ICRA AA’, keeping the outlook 'stable'.

"The HFC has an established track record in the mortgage finance industry with assets under management (AUM) of Rs 68,549 crore and loan book of Rs. 62,337 crore as of December 31, 2023. The reported gross non-performing assets (NPAs) declined to 1.7 per cent as of December 31, 2023, from 3.8 per cent as of March 31, 2023 (8.1 per cent as of March 31, 2022), aided by the sale to asset reconstruction companies (ARCs), write-offs, recoveries and lower incremental slippages," ICRA said.