PNB Housing Finance a turnaround story, says UBS; MOFSL sees 17% upside

UBS has initiated coverage on PNB Housing Finance with a 'Buy' rating, as it sees the housing finance company (HFC) as a turnaround story with reasonable valuations. MOFSL, which recently met the PNB Housing management, said there was a good visibility on loan growth and the HFC has ability to protect net interest margin (NIM). Both the brokerages suggested a target price of Rs 1,300 on the stock, suggesting a potential upside of 17 per cent ahead. 

PNB Housing Finance has a loan book of Rs 80,000 crore. While prime loans make up 73 per cent of its loan book, the HFC is diversifying into the emerging and affordable loan segments, which UBS believes are a better fit for PNB Housing given its AA+ credit rating. 

UBS said the expansion into these new segments could support a 16 per cent AUM CAGR over FY25-27E, as it forecast 40 per cent of the book would be non-prime by FY27 against 25 per cent in FY25. 

"We expect this, in turn, to drive yield expansion, leading to a 13 per cent EPS CAGR over FY25-27E. An increase in leverage could lead to a 13 per cent+ ROE by FY28E. At 1.4 times FY27E P/BV, we believe risk-reward is favourable as the stock trades at a discount to peers, despite robust loan growth and improving ROE profile," it said while initiating coverage on the stock. The brokerage suggested a 'Buy' with a target price of Rs 1,300 on the stock. 

MOFSL said PNB Housing is strategically focused on maintaining profitability through disciplined margin management, driven by a strategic shift toward higher-yielding affordable and emerging housing segments, coupled with a cautious resumption of corporate disbursements. 

Its commitment to controlled growth (18 per cent retail loan growth) and prudent asset quality management positions it favorably, it said.

"We expect PNBHF to deliver a healthy 19 per cent CAGR in the loan book and ~18% CAGR in PAT over FY25-27, with an RoA/RoE of 2.5 per cent/13.3 per cent by FY27. The company trades at 1.4x FY27E P/BV and the risk-reward is favorable for a further re-rating in the valuation multiple as investors gain more confidence in its sustained execution in retail," it said.

MOFSL maintained 'Buy' on the stock.

UBS said it sees an overall impact of 10 bps on loan yield in FY26, likely to be offset by a lower cost of funds. "We also expect provisions to start inching up as a recovery from the wholesale and retail books has driven credit costs lower. We expect a steady state 30 bps credit cost from FY27E," it said.