Reblog: IPO Analysis – PNB Housing Finance
PNB Housing Finance is entering the primary market on Tuesday 25th October 2016, to raise Rs. 3,000 crore, via a fresh issue of equity shares of Rs. 10 each, in the price band of Rs. 750 to Rs. 775 per share. Based on the price discovered, company will issue 3.9 to 4.0 crore equity shares at the upper and lower end of the price band respectively. Representing 23.37% of the post issue paid-up share capital at the upper end, issue closes on Thursday 27th October.
51% subsidiary of Punjab National Bank, PNB Housing Finance is India’s 5th largest home loan provider (after HDFC, LIC Housing, Dewan and Indiabulls Housing) with loan book of Rs. 30,900 crore (30-6-16), 70% of which is housing loans, having average ticket size of Rs. 32 lakh. Average ticket size for non-housing loans, which constitute 30% of the loan book, is Rs 57 lakh. With operations mostly in the urban areas of North, South and West India, its loan book has posted CAGR of 62% between March 2012 to June 2016.
While FY16 revenue grew 52% YoY to Rs. 2,700 crore, Net interest income (NII) jumped 63% YoY to Rs. 840 crore, leading to net profit of Rs. 328 crore and EPS of Rs. 27.58, on equity of Rs. 126.92 crore. Net interest margin (NIM) of 2.98% was clocked in FY16, up from FY15’s 2.94%, while Return on average assets (RoA) stood at 1.35%, up from FY15’s 1.27%.
The stupendous financial performance continued into FY17, with revenue of Rs. 863 crore, NII of Rs. 255 crore and net profit of Rs. 96 crore for the June quarter. Q1FY17 EPS stood at Rs. 7.57. Despite the phenomenal growth, asset quality is has remained intact, infact better than industry average. Gross NPAs, as of 30-6-16, of Rs. 84 crore, represents 0.27% of gross assets.
As of 30-6-16, company had networth of Rs. 2,240 crore, translating to BVPS of Rs. 177. It has only 2 shareholders – parent Punjab National Bank (51%) and Carlyle Group (49%), the latter pursuant to its acquisition of Destimoney Enterprises in Feb 2015. Fresh issue proceeds of Rs. 3,000 crore will augment company’s capital base. Current capital adequacy ratio (CAR) stands at 13.04% vis-à-vis regulatory requirement of 12%.
Given the room which fresh capital will provide the company for further leverage, capital being lifeline for any finance business, FY17 expected EPS is estimated at about Rs. 35 per share. At Rs. 775, company’s market cap will be Rs. 12,837 crore, upon listing, based on expanded equity of Rs. 165.63 crore. Estimated BVPS, as of 31-3-17, is Rs. 340, which translates into PBV multiple of 2.3x, while the PE multiple works out to 22x, based on current year estimates.
Below is a comparison with other listed housing finance companies, both bigger and smaller than the company:
| Company Name
(Rs. Crore) |
Loan Assets |
Revenue |
PAT |
Gross NPA % |
Current Market Cap
|
Mcap % to loan assets
|
PE |
PBV |
||||
|
As of 30-6-16 |
QoQ Growth |
FY16 |
YoY growth |
FY16 |
YoY growth |
Margin |
30-6-16 |
FY17E |
FY17E |
|||
| LIC Housing |
1,27,437 |
1.8% |
12,396 |
16.2% |
1,661 |
19.8% |
13.4% |
0.59% |
31,087 |
24% |
16.9x |
2.8x |
| Dewan |
72,012 |
3.6% |
7,312 |
22.2% |
729 |
17.4% |
10.0% |
0.98% |
10,455 |
15% |
11.6x |
1.7x |
| Indiabulls Housing |
71,026 |
3.4% |
8,290 |
28.2% |
2,345 |
23.4% |
28.3% |
0.84% |
37,121 |
52% |
12.5x |
2.7x |
| PNB Housing |
30,901 |
13.7% |
2,700 |
51.6% |
328 |
68.9% |
12.1% |
0.27% |
12,837* |
42%* |
22.1x* |
2.3x* |
| Gruh Finance |
11,543 |
3.9% |
1,275 |
20.3% |
244 |
19.5% |
19.1% |
0.56% |
12,409 |
108% |
44.3x |
11.1x |
| Can Fin |
11,183 |
5.1% |
1,084 |
32.6% |
157 |
82.1% |
14.5% |
0.24% |
4,861 |
43% |
22.1x |
4.3x |
* at upper end of price band of Rs. 775 per share
The growth rates which PNB Housing has posting is the highest in the industry (only Can Fin reported higher PAT growth in FY16, but its revenue and loan book growth was much lower). Moreover, PNB Housing’s NPAs have also been under check – 2nd best in the peer set. While net margins and RoE can improve further, based on valuation parameters of PBV multiple (2.3x) and market cap as a % to loan assets (42%), the pricing of the issue appears in-line. Growth visibility in the stock remains very high, given the fresh capital coming into the business, which provides added comfort.
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.
Disclosure: No Interest.
The original article is authored by Geetanjali Kedia and is available here.