Amid bear grip around NBFCs, liquidity concerns recede for PNB Housing

But competitive pressures to cap upsides on profitability, loan growth

While the non-banking financial companies are in a bear grip, the stock of PNB Housing Finance bucked the trend, gaining 5.8 per cent in Monday’s trading session. Raising external commercial borrowings (ECBs) of $200 million, or Rs 14.7 billion, and liquidity position updates given by the company supported the sentiment for the stock. The next trigger for the stock will be the ability to maintain profitability while ensuring loan growth.

While the company plans to raise Rs 20 billion non-convertible debentures (NCDs), it is gradually reducing its dependence on debt market borrowings (commercial papers and NCDs) from 50.5 per cent as of June to 43.3 per cent as of December. Also, according to Kapish Jain, chief financial officer at PNB Housing, the fully hedged cost of the recent ECBs is cheaper than the domestic market. Put together, this should help lower the cost of funds to some extent. There would be additional ECB of Rs 15.3 billion by the company.

However, this is unlikely to improve the net interest margin in the near term, given the stiff competition, which limits the pricing power of housing companies, says an analyst at a domestic brokerage. Also, Rs 70-billion proposed bank borrowings would confine the funding cost benefits for PNB Housing.

“The bank borrowings route of housing finance companies would come at a slightly higher cost and hence would impact margins and return profile in the near term. But, it will provide more stability to refinancing given the current turmoil in the money market,” said Rajesh Gupta, AVP, retail research, at SBICAP Securities.

Positively, the ECBs along with other proposed borrowing plans would help maintain liquidity position at satisfactory levels. “This will not only provide liquidity but also enhance our asset-liability management position, as the facility (recent ECB) is fixed for five years,” Jain added.

Analysts also believe that with the recent ECB, liquidity should not be a concern for PNB Housing, which would mitigate refinancing risk. But, how the competitive intensity plays out and how PNB Housing will get affected is what the Street will watch out for.