PNB Housing Finance: IPO Analysis

pnb1PNB Housing Finance, the fifth largest HFC in India by loan and claim to having second largest amount of public deposits in an HFC in India, is coming out with an IPO to raise Rs 3,000 crore through an initial public offering.  The company is promoted by Punjab National Bank (“PNB”), one of the large nationalized banks in India with 51% stake with Private equity firm Carlyle Group owning  the remaining 49% stake in PNB Housing Finance.  The proposed IPO is entirely a fresh sale of shares

Related Link: PNB Housing Finance: Comparison with Peers

 Issue Details:  

  • Date of Issue:   25-27 october 2016
  • Price Band : Rs. 750-775/-
  • IPO Size:  3000 crore;
  • Lead managers :   Kotak Investment Banking, BofA Merrill Lynch, JM Financial, J P Morgan and Morgan Stanley
    Purpose of the Issue : the proceeds of the issue will be used to augment capital base to meet future capital requirements and for general corporate purpose.

About The Company :

The Company was incorporated as “PNB Housing Finance Private Limited” on November 11, 1988, as a wholly- owned subsidiary of PNB. It was registered as an HFC with the NHB on July 31, 2001. In December 2009, the company entered into an agreement with PNB and Destimoney Enterprises Limited (“DEL”), pursuant to which DEL acquired 26.00% of the Equity Share capital of our Company. Subsequently, through a series of transactions, DEL subscribed to additional Equity Shares in our Company and increased its stake to 49.00% of the Equity Share capital of our Company.  Private equity firm Carlyle Group acquired the 49%  stake  in the company last year when it purchased bulk of the business of New Silk Route-controlled financial services firm Destimoney in its first major buyout in India. As  on date PNB had 51 per cent stake in the company  while Private equity firm Carlyle Group owns the remaining 49% stake in PNB Housing.

As of December 31, 2015,  a total of 72 companies had been granted certificates of registration by the NHB to act as HFCs (Housing Finance Companies)   and out of these 12 HFCs were granted permission to accept public deposits on their own without seeking permission. PNB Housing Finance is the 2nd largest HFC in terms of deposits by the public.

PNB Housing Finance revenue from operations grew at a CAGR of 55.56% from ₹4,610.00 million in Fiscal Year 2012 to ₹26,995.43 million in Fiscal Year 2016. Our network has also expanded from 32 branches and 14 processing hubs as of March 31, 2014 to 47 branches and 16 processing hubs as of March 31, 2016.

PNB Housing Finance historically, was a north-centric company but it has now more balanced presence. Presently its business involves 40 per cent from north, 30 per cent each from west and south. At Loan portfolio level, it has  45 per cent north-central, but equally divided between west and south with 32 per cent each.

PNB Housing: Important Landmarks

  • 1988: Obtained NHB license for home loans and retail deposits & Company commenced operations
  • 2003: Notified under the SARFAESI Act (The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act)
  • 2006: Crossed 1,000 crore loan portfolio
  • 2009: PNB sold 26% of its stake in share capital of the Company to Destimoney Enterprise Private Limited (DEL)
  • 2010: Launched business process re-engineering project “Kshitij”
  • 2012:  DEL increased its shareholding to 49%, pursuant to the conversion of CCDs issued to DEL in 2009;  Gross and net NPAs brought lower than 0.5% of the asset portfolio
  • 2013: Crossed ` 1,000 crores retail deposits CRISIL AA+4 rating (for NCDs and bank terms loans) and DFAAA4 (for deposits)
  • 2014: PAT crossed  100 crores and portfolio crossed  10,000 crores
  • 2015:  Pilot implementation of Enterprise System Solution  AAA rating by ICRA and India Ratings (Fitch Group) for NCD borrowing program
  • 2016: Crossed 25,000 crores of loan portfolio ; Crossed `7,000 crores of deposit book

Financials:   (Rs. Crores)

Particulars/ Year 31-Mar-16 31-Mar-15 31-Mar-14 31-Mar-13 31-Mar-12
Operational Revenue 2699.54 1780.38 1120.32 666.3 461
Tot  Revenue 2699.54 1780.38 1120.32 666.3 461
Interest Exp 1860.29 1264.84 801.6 461.95 314.4
Employee  Exp 75.28 67.06 40.4 25.42 15.42
Office Opr Exp 56.43 44.81 25.47 17.38 10.3
Other Expenses 107.1 62.83 40.13 19.37 8.76
Depreciation 15.04 8.28 3.31 0.97 0.22
Provision 78.58 37.08 22.44 9.92 3.5
Bad Debts Written Off/Business Loss 2.55 1.02 7.99 2.55 2.77
Tot Expenses 2195.26 1485.93 941.34 537.56 355.38
PBT 504.28 294.45 178.98 128.74 105.62
 Provision Tax 0 0 0 0 0
-Current Tax 166 91.47 50.68 34.92 29.17
-Deferred Tax (Net) 10.72 8.91 -1.4 1.01 -1
PAT 327.57 194.07 129.7 92.82 77.45
Share Capital 126.923
Net worth 2144.5
OPM 91.15%
NPM 12.13%
EPS 25.81
Market /Issue Price 775
RONW 15.27%
NAV 168.96
P/E 30.03
P/BV 4.59
CAGR sales  3 yr 59.42%
CAGR sales 1 yr 51.63%
CAGR NP 3 yrs 52.25%
CAGR NP1 yr 68.79%
Interest Coverage 132.28%

Post IPO Ratios for PNB Housing Finance ( Increase in equity, net worth &  Nav and corresponding ratios)

Share Capital 167
Net worth 5345
EPS 19.61
Market /Issue Price 775
RONW 6.13%
NAV 320
P/E 39.52
P/BV 2.42

New Update: Quarterly Results Q1Fy17

Particulars Q1FY17 FY16 FY15 FY14 FY13
Revenue from Operations 8634.4 26995.4 17803.8 11203.2 6663
Interest Expenses and Other Charges 6079.9 18602.9 12648.4 8016 4619.5
Employee Benefit Expense 221.2 752.8 670.6 404 254.2
Office Operating Expenses 160.5 564.3 448.1 254.7 173.8
Other Expenses 374.6 1071 628.3 401.3 193.7
Depreciation & Amortisation 44.7 150.4 82.8 33.1 9.7
Provision for Doubtful Debts & Contingencies 272.8 785.8 370.8 224.4 99.2
Bad Debts Written Off/Business Loss 7 25.5 10.2 79.9 25.5
Total expenses 7160.5 21952.6 14859.3 9413.4 5375.6
PBT 1473.8 5042.8 2944.5 1789.8 1287.4
Current Tax 511.8 1660 914.7 506.8 349.2
Deferred Tax 1.7 107.2 89.1 -14 10.1
Total tax 513.5 1767.1 1003.8 492.9 359.2
Reported PAT 960.3 3275.7 1940.7 1297 928.2
Equity 1269.2 1269.2 1038.5 656.9 500
FV 10 10 10 10 10
EPS 7.57 25.81 18.69 19.74 18.56


  • CRISIL expects housing loan disbursements to have grown at a five-year CAGR of 19-21% to reach ₹8.30 trillion by Fiscal Year 2020, aided by mortgage penetration, higher average ticket sizes and demand for affordable housing
  • HFCs have steadily gained housing finance market share from banks, having increased their share from 31% in Fiscal Year 2012 to 37% in Fiscal Year 2015. Despite banks showing continuing growth in their lending portfolio, HFCs are able to gain market share due to, among other things, better access to customers in non-metro cities, their strong origination skills, focused approach and customer service orientation.
  • PNB Housing Finance business and loan portfolio have grown significantly in the last few years to become the fifth largest HFC in India by loan portfolio. PNB Housing Finance Loan portfolio grew at a CAGR of 61.76% from ₹39,696.63 million as of March 31, 2012 to ₹271,772.68 million as of March 31, 2016. Its outstanding public deposits (net of maturities) grew at a CAGR of 110.41% from ₹3,630.66 million. PNB Housing Finance revenue from operations grew at a CAGR of 55.56% from ₹4,610.00 million in Fiscal Year 2012 to ₹26,995.43 million in Fiscal Year 2016. Its network has also expanded from 32 branches and 14 processing hubs as of March 31, 2014 to 47 branches and 16 processing hubs as of March 31, 2016.
  • In the year 2010, 77% of PNB Housing Finance book was sourced from north. PNB Housing Finance has put concerted efforts to overcome this concentration. As of now, it stands at 45% with rest divided equally between South and Eest. Penetration in the East is still negligible.
  • A major Plus point for PNBHFL is that it has reduced its average cost of borrowings from 9.30% in Fiscal Year 2014 to 8.67% in Fiscal Year 2016, and 8.65% in the three months ended June 30, 2016 on an annualized basis by actively seeking to diversify the sources of its funding through the use of funding sources such as NCDs, ECBs, refinance from the NHB and commercial paper. The cost of borrowing from private players like DHFL & India Bulls Housing Finance is higher and in 9%+ zone.
  • The company also intends to tap the NRI market by opening offices in West Asia & desires to tap into NRI segment which is estimated ti comprise about 12-13 percent of the overall housing market.
  • PNB Housing Finance Promoter, PNB, has recently been adversely impacted by rising NPAs, which has resulted in a downgrade of the credit rating by ICRA of PNB Housing Finance NCDs (secured and unsecured) from “[ICRA]AAA/Stable” to “[ICRA]AA+/Stable” and a change in the credit outlook of NCDs by CRISIL from “CRISIL AA+/Stable” to “CRISIL AA+/Negative”. In addition, the credit outlook of its public deposits by CRISIL changed from “FAAA/Stable” to “FAAA/Negative” and the credit outlook of its long-term loan facilities by CRISIL changed from “CRISIL AA+/Stable” to “CRISIL AA+/Negative”.
  • PNB Housing Finance gross NPAs as of March 31, 2016, 2015 and 2014, respectively, stood at 0.22%, 0.20% and 0.32%, respectively, as a percentage of its total loan portfolio. As of March 31, 2016, PNB Housing Finance net NPAs as a percentage of its total loan portfolio, were 0.14%.
  • PNB Housing Finance paid a dividend of 30% , 30% & 34% for the year ending 2014, 2015, 2016 respectively.
  • PNB is 2nd largest HFC in terms of public deposits. Its Deposits have grown at a CAGR of 104%
  • Government initiatives like Housing for All by 2022 Mission: Affordable Housing ; Smart Cities Mission: Urban development bode well for all HFCs including the company.
  • PNB Housing Finance has grown at an astounding pace. Its CAGR 3 year sales stand at 59% and CAGR 3 hears profit stand at   52% which is better than all other HFCs with only Canfin Homes approaching it  in  terms of sales & Profit Growth.
  • While PNB Housing Finance has shown good growth, the IPO has been priced rather steeply at P/BV Ratio of 4.59 and PE ratio of 30 on pre IPO equity basis,  which is way above most of the HFCs including HDFC. The HFCs with which its has set the bar include REPCO with P/BV of 4.91 & Canfin Homes with P/BV of 5.23. However the stock’s post-issue valuation — 2.42 times its FY16 book value at the issue price lies between the valuations of other housing finance companies (HFCs).
  • The announcing of steep price band for PNB Housing Finance on first & second day led to all round rally in listed HFC prices. Despite such high pricing the issue could sail through.
  • In Q1Fy17,  PNB Housing Finance has made a profit of 98 crore. Thus for full year 2016-17 with funds infusion it could rake in an eps of 33-35 which will bring down its high PE ratio vis a vis peers. However peers are also likely to report growth in profit though chances of PNB reporting better profits are more.
  • Post IPO, due to good jump in NAV on account of  heavy premium being charged, P/BV ratio is down to 2.5 but others like PE ratio (38) are higher compared to peers. Also infusion of 3000 crore of funds is likely to be reflected +vely in its other financial  parameters.
  • Presently the factors to subscribe to issue seems to weigh more than negatives including price as management should have priced the issue on bit lower side.
  • Grey market rate 0n 23/10/16 stnads around Rs. 55-57  i.e. a 7% over the issue price.
  • Considering the large issue size,  full price retail investors are likely to get easy allotment 1-1.5 times over subscription. Despite stiff price Long term investors may not be looser in this IPO.

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.

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