PNB Housing gets new 'Buy' from UBS on above average growth; stock up 2%

PNB Housing Finance shares rose 2 per cent after UBS initiated coverage with a 'Buy' call, citing above-market-average growth

Shares of PNB Housing Finance advanced on Friday after UBS initiated coverage with a 'Buy' call, citing above-market-average growth and a favourable risk-reward ratio for the stock. 

 

Analysts at the global research firm assigned a target price of ₹1,300 per share for the non-banking financial company, implying a potential upside of 17 per cent from the previous close. 

 

Prime loans currently account for 73 per cent of PNB Housing Finance’s loan book, but the company is expanding into emerging and affordable segments, which better align with its AA+ credit profile, UBS said in its report. Analysts expect this diversification to drive a 16 per cent compound annual growth rate (CAGR) in assets under management between financial years (FY) 2025 and 2027, leading to a 13 per cent earnings per share (EPS) growth over the same period. 

 

PNB Housing Finance’s loan growth will be driven mainly by affordable and emerging segments, expected to form 38 per cent of the loan book by FY27 and contribute 75 per cent of growth, the brokerage said. Prime loans will contribute 25 per cent of the growth despite a declining share. Entry into developer financing may have a limited near-term impact but could enhance growth and return on assets from FY28, it said.  CATCH STOCK MARKET UPDATES TODAY LIVE

Near-term margin pressure

UBS expects the Reserve Bank of India (RBI) rate cuts to have a material impact on the NBFC's existing prime book and incremental lending. While the company has low exposure to repo-linked loans, new loan rates would have to be cut, and marginal cost of lending rate (MCLR)-linked rate cuts would need to be passed on, it said. 

 

They estimate an overall impact of 10 basis points 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." Analysts expect a steady state 30 bps credit cost from FY27. 

 

Further, despite robust loan growth and improving return on equity (ROE) profile, UBS believes that risk-reward is favourable as the stock trades at a discount to peers.  ALSO READ | Mahindra Lifespace shares up 5% on securing redevelopment project in Mulund 

Motilal Oswal on PNB Housing Finance

On meeting with the senior management of the NBFC, Motilal Oswal said that the lender's long-term strategic focus remains on margin and return on equity expansion. 

 

PNB Housing Finance’s long-term strategy includes expanding affordable housing via branch-led sourcing, protecting margins through pricing discipline, improving productivity, and cautiously scaling up corporate lending.  Its commitment to controlled growth and prudent asset quality management positions it favourably, the brokerage said in a note. 

 

The NBFC is expected to deliver around 19 per cent CAGR in its loan book and 18 per cent CAGR in profit after tax over FY 25-27. Return on assets and equity are projected at 2.5 per cent and 13.3 per cent, respectively, by FY27. The domestic brokerage reiterates a ‘Buy’ rating with a target price of ₹1,300 per share.   ALSO READ | Vedanta shares rise 2% in trade after inking $600 mn facility agreement

PNB Housing Finance share price history

The lender's stock rose as much as 2.23 per cent during the day to ₹1,136 per share. The stock pared gains to trade 0.9 per cent higher at ₹1,120 apiece, compared to a 0.02 per cent advance in Nifty 50 as of 9:52 AM. 

 

Shares of the company extended gains to their sixth straight day on Friday, gaining nearly 10 per cent in the process. From its March lows, the stock has surged nearly 50 per cent. 

 

The counter has risen 27 per cent this year, compared to an 8.12 per cent advance in the benchmark Nifty 50. PNB Housing has a total market capitalisation of ₹29,108.99 crore, according to BSE data.