PNB Housing Finance: Run up to IPO

pnbhome(This page tries to bring out consolidated opinion, IPO Analysis , IPO Note/ reports and recommendation of brokerages , Analysts, Business New papers, Management views  etc on PNB Housing Finance  IPO and shall be updated continuously till the closure of IPO. Thus can  help investors to decide whether they should subscribe to PNB Housing Finance IPO)

Check PNB Housing Finance  IPO Allotment Status ( expected any time now)

1/10/16 PNB Housing Finance grey market premium further shot up to Rs. 95-100/-

28/10/16 PNB Housing Finance grey market premium has shot up to Rs. 75/- from 55-60/- after good response to its IPO

Subscription:  PNB Housing Finance IPO  ( x times)
QIB NII Retail Total
Day 3  37.33  86.17  1.36  29.55
Day 2  .92  .14  .57  .57
Day 1 0.35 0.08 0.17 0.20

PNB Housing Finance: Anchor Investors:

Among the main  anchor investors, General Atlantic Singapore Fund FII Pte 6.02 lakh shares, SBI Life Insurance Company  3 lakh shares, HDFC fund 5.16 lakh shares, Axis Mutual Fund A/C Axis Small Cap Fund  1.03 lakh shares, Franklin Templeton Mutual Fund A/C Franklin India Prima Fund  3.87 lakh shares and The Nomura Trust & Banking Co. 4.23 lakh shares etc. .

Complete anchor list

Economic Times had  earlier reported ” PNBHousing Finance received bids for as much as thirty times the value of the anchor book on offer, people briefed on the matter said.  The offering by the part-state owned and part-privately-owned issuer was fully subscribed at the top end of the price band of Rs. 750-775 per share, according to these people.  The value of the anchor book on offer is Rs 900 crore.  Demand was seen from a combination of investors including domestic banks, mutual funds, long only funds and even private equity investors.  Link:

Views of brokerages , Analysts, Business New papers, Management views  

Interview with Management: Shri Sanjay Gupta, CMD, PNB Housing

ICICI Direct: “At the IPO price band of Rs. 750-775, the stock is available at a multiple of 2.5x FY16 ABV (post issue) at the upper end of the price band. Post issue market capitalisation is at ~| 12836 crore. Given robust advances growth, best asset quality among peers and foray in the affordable category housing finance segment, the future outlook remains favourable. Therefore,  recommend that investors SUBSCRIBE to the issue.”

Centrum: “Advises to subscribe the issue stating that valuations appear reasonably attractive, compared to peers with largely similar return on assets (RoAs) such as LIC Housing Finance, GIC Housing Finance, Can Finance Homes. Considering the healthy financials, top-quartile return ratios and overall growth in the housing finance sector backed by government’s  housing for all and smart cities programme, it believes PNB Housing Finance offers an ideal investment opportunity.”

Nirmal Bang: Suggests to subscribe the issue impressed with strong balance sheet growth and profitability. It believes that the return ratios will further improve. Between FY12-16, its net interest income grew at CAGR of 54.7 percent while return on equity was 17.6 percent for FY16.”

Hem Securities: “At price band of Rs 770-775, p/b multiple will turn out to be 2.3-2.45 on post issue book value of Rs 316/share of company. Looking at the strong growth prospects of housing finance sector issue looks decent on long term perspective . Hence,  recommend “Subscribe” on issue for long term . “

Ajcon Global: “With due consideration to factors like a) Indian Housing Finance Sector Poised For Strong Growth, b) Indian Mortgage Market is significantly under-penetrated, c) 5th largest by loan portfolio and 2nd largest by deposits, d) strong parentage, independent professional management and an autonomous board, e) fastest growing HFC amongst the Top 5 HFCs in India, f) strong growth in loan portfolio across segments over the last 5 years, g) robust and scalable technology-enabled target operating model, h) wide product offering with ~70% of the loan portfolio as housing loans with an average ticket size of Rs. 3.2 mn catering to affordable segment which has a higher demand, i) strong distribution network with pan India presence and over 7,110 channel partners across India, j) diverse and cost effective funding mix with average cost of borrowing at 8.65%, j) lowest GNPAs amongst peers in India at 0.27%, k) efficient capital utilization and delivering healthy RoEs consistently, l) fairly valued on post issue basis (2.5x – P/BV) considering its credentials against existing listed peers, recommend to “SUBSCRIBE” the issue.”

Motilal Oswal:  ” ROE low, but growth in assets race ahead of peers . The brokerage finds the IPO attractive given the housing financier’s track record of growth, stable return ratios and robust outlook on the housing finance industry.

Qunat: ““At the upper band of the price band, the company is valued at Rs 11,910 crore, quoting at 2.3 times P/B FY16 (post dilution), which is quite reasonable compared with peers like CanFin Homes, which is trading at six times P/B FY16 numbers. Considering the healthy business momentum, relatively low risk model as well reasonable valuations, recommend a subscribe rating on the issue”

IDBI Capital Markets: believes the RoE shall get more robust as operating leverage kicks in for PNB Housing and therefore feels  there are strong earnings levers for PNB Housing over the next 2-3 years which could actually push up valuations. Would like to highlight Repco Home Finance in this regard, whose valuations have been re-rated from 1.9 times one-year forward P/ABV at IPO price to around 4.5 times now,”

SPA Financial Advisors: “PNBHFL has consistently focused on growth with its loan book growing at a CAGR of 61% in FY12-16. While PNBHFL has gained market share, it lags peers on profitability (last three years RoAE of ~17% compared to 22% for HDFC and 19% for LIC Housing). Key reason for its low profitability is its high Cost-to Income (CI) ratio of ~30% compared to ~8% for HDFC and ~4% for LIC Housing. We believe that CI ratio is a function of size and as PNBHFL leverages technology and wide distribution reach to grow above industry rate, its CI ratio should come down thereby improving profitability. At the upper end of the price band, the stock will trade at 2.5x FY16 P/BV (post issue), which is at discount to its immediate peer, Can Fin Homes. Recommend SUBSCRIBE to the issue for medium to long term gains as deleveraging due to capital raising and cost optimization should help PNBHFL to improve its return on asset.

Hindu Business Line: “The stock’s post-issue valuation — 2.4 times its FY16 book value at the upper end of the price band of ₹750-775 per share — lies between the valuations of other housing finance companies (HFCs). From 1.9 times (Dewan Housing) to about 3.4 times (Indiabulls Housing & LIC Housing) and five to six times (HDFC, Repco Home and Canfin Homes) to as high as 14.8 times (Gruh), valuations are widely spread for players in this space. The PNB Housing Finance issue, which is priced close to the lower end of this range, offers a good opportunity for long-term investors with a high-risk appetite.

Religare Retail Research: “PNBHFL is ranked among the top 5 HFCs in the country and has maintained high growth of ~62% in the last four years with stable asset quality. Its loan portfolio comprises of ~70% of individual housing loans, which is the least risky. Its asset quality (FY16) is the best among housing finance companies with GNPAs at 0.22%, lower than DHFL (0.9%) and HDFC (0.7%). In the price band of Rs 750 – 775, company is valued at ~2.4x FY16BV (post IPO) which is slightly stretched visa-a-vis DHFL (~1.8x) but it is still cheaper than Can Fin (~6x) and HDFC (~4x). PNBHFL’s foray into affordable housing targeting Tier II/Tier III cities, growth prospects, steady asset quality and strong ROE (18%) will support its valuations over the next couple of years.

Angel Broking: “Outlook & Valuation: PNBH has delivered RoE of 17.6% on the pre issue networth. While the IPO will result in RoE compression, this will give the much required fund for growth. At the upper price band the issue is offered at 4.6x its FY16 BV. However at the post issue BV of `311, it is offered at 2.5x. PNBH is all geared up for its next leg of growth and has the potential to become a significant player in the Indian mortgage business. Looking at the quality of management, which can drive the growth, we recommend a SUBSRIBE to the issue.

SP Tulsian Brokerage:”Housing finance industry has been on a growth trajectory, with further headroom for growth. Company’s industry-leading growth coupled with sound fundamental position make it an attractive investment opportunity, albeit softening due to higher base. Positive sector outlook coupled with stunning growth rates make the issue a subscribe.

SMC Global: “With the government focusing more on housing sector, it is expected that the sector would see the significant growth. The company intends to continue to maintain the credit quality of its loan portfolio by undertaking comprehensive risk assessment processes and diligent portfolio monitoring and management methodologies. Moreover, it intends to further develop and strengthen its technology platform to support its growth and improve the quality of its services. An aggressive investor may opt the issue.”

Capital Market: Score 49/100 “PNB Housing Finance’s EPS for FY2016 on post-issue equity works out to Rs 19.78. At the lower price band of Rs 750 per equity share of Rs 10 face value P/E works out to 37.9 times of FY2016 EPS of Rs 19.78 (on post-IPO equity). At the upper band of Rs 775 per equity share, P/E works out to 39.2 times of FY2016 EPS of Rs 19.78 (on post-IPO equity).The book value of PNB Housing Finance is Rs 176.52 as of June 2016. Post-issue, the book value works out t Rs 316.39 per share at issue price of Rs 775. The adjusted book value is Rs 312.9 per share. P/BV (post-issue) for PNB Housing Finance works out to 2.45 times and P/Adj BV at 2.48 times at the upper price band. Among the comparable peers, Gruh Finance is trading at P/BV of 13.7 times, Can Fin Homes is trading at P/BV of 5.3 times, Repco Home Finance is trading at P/BV of 4.9 times, HDFC is trading at P/BV of 4.0 times, Indiabulls Housing Finance is trading at P/BV of 3.4 times, LIC Housing Finance is trading at P/BV of 3.2 times and Dewan Housing Finance is trading at P/BV of 1.9 times. At the price band of Rs 775 per share, PNB Housing Finance is offered at a P/E of 39.2 times (FY 2016 EPS on post-issue equity). Among the comparable peers, Gruh Finance trades at P/E (on EPS for FY2016) of 50.5 times, Repco Home Finance at 31.7, Can Fin Homes at 31.1, HDFC at 21.1, LIC Housing Finance at 18.4, Indiabulls Housing Finance at 18.4 and Dewan Housing Finance at 11.9.”

Digant Haria, Antique Stock Broking :”PNB Housing priced aggressively, don’t expect steep IPO gains. There are more than 12-13 companies available in this space. One has to decide what is one looking for. So, as we see, PNB Housing Finance is clearly focusing on urban areas, on the salaried class, on the large ticket, on the loan against property (LAP) whereas there are a lot of other players like Can Fin Homes   , Repco , they are focusing on the small ticket housing. So, we at Antique, since the last three years, have a view that small ticket housing is where a lot of action is, where there is genuine demand and where there is genuine government thrust. So, we think that as a space, small ticket is more attractive that large ticket, but given the fact that in an interest rate easing environment, housing finance companies in general do well. So, PNB housing also, if we take a year to a year and half view, there is some money on the table, maybe 20-25 percent.”

KRChoksey: “Subscribe to PNB Housing Finance IPO on a longer Horizon only;  On FY16 basis pre-issue PNBHF is trading at 4.5x P/BV (BV at INR 169). Post issue, PNBHF is expected to trade at 2.3x P/BV FY17E and 2.0x P/BV FY18E. While FY18 valuations stand attractive, downside risks; viz, equity dilution,anticipated asset quality pressures ahead particularly on account of higher proportion of non-retail loans and unlikelihood of RoEs sustenance at current high levels. As the short term challenges persist in terms of sustenance of higher levels growth and profitability with higher likelihood of asset quality risks emerging from non-retail segment,  the company can be bought only to reap long term benefits. “

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(More views to be added)

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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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