The Rs 3,000-crore initial public offer (IPO, of equity) by PNB Housing Finance will hit the market on Tuesday. The shares are priced at Rs 750-775 each, on a face value of Rs 10. Sanjaya Gupta, managing director, on the pricing and other issues in a talk with Indivjal Dhasmana. Edited excerpts:
How do you justify the Rs 750-775 price?
It’s a discovered pricing, not determined by only gut feeling. We did a thorough anchor book building across the globe, along with the domestic market. We have five bankers. We have a very diverse audience. Demand was totally inelastic or not sensitive to price; that was overwhelming. It also meant we have to use different other tools to peg ourselves. Housing finance companies (HFCs) have got a wide band of price to book valuations. We, sort of, grouped a few companies like us and asked, what is the median? Then, we went a shade lower and pegged ourselves there. That is how we discovered our price and I think we did it very truthfully.
Your return on average assets is compressed. Why so, and how does the IPO correct it?
It is an outcome of over-leveraging. As of March, it (return on assets) was about 1.37 per cent. It had further got compressed to about 1.2 per cent by the end of the first (June) quarter of this financial year. The reason why is that HFCs on an average are geared (equity to borrowed funds) at about eight times; we were geared at about 12.5 times as of March and 15 times as of June. That has put pressure on Rota (return on total assets); otherwise, there is nothing to worry.
The IPO will certainly correct that situation and we will be comfortably placed. It will give us that window to further raise capital in the future.
You will become a private sector company after the IPO, against the current status of a public sector one. How will it change the company's working and its relationship with Punjab National Bank?
PNB put professional management in the company and not interfered for the past five years. So, from Rs 300 crore which was the value as on June 2010, today, post IPO, the company will be valued at Rs 13,000 crore. Its becoming a private sector company will not change our DNA. We will, tomorrow, work the same way as we do today. My relationships with PNB are very amicable; we will maintain it like that.
Your IPO is at a time when the real estate market is down. Is the timing correct?
It depends on the segment you are looking at. Yes, in the luxury segment, the velocities are down. Not in mass housing, where we focus and operate. We are seeing good enough volume. Yes, CAGRs (compounded annual growth rates) at a sectoral level are not that fantastic but are good at 18-20 per cent, depending on market to market.
Banks are becoming aggressive on lending to the housing sector. How do you see that competition?
The component of HFCs in this sector has increased, not come down, due to efficiency of delivery. Customers always like to go to the more efficient organisations. I think HFCs will remain above 40 per cent of the total industry (lending). The market is big enough for meaningful, stable growth. There is nothing wrong if everybody is growing.
Why have you been telling investors that you might not be able to grow your business and loan portfolio at the same rate as in the past?
Obviously, we will not be; that is a mathematical function of a lower base. At a higher base, you will not be growing at the same rate. Growth rates are also a ramification of your capacity.
How do you see the rate cut move by the Reserve Bank of India? Will your company cut its interest rate?
If it gets transmitted (to us), we will transmit onwards. It takes time. That has to be understood.