PNB Housing Finance - Steering Through Near-Term Headwinds For A Robust Franchise Ahead: Motilal Oswal

Motilal Oswal Report

PNB Housing Finance Ltd. is well equipped to successfully navigate the near-term headwinds in its net interest margin profile, and further offset them with product mix improvement. We expect the company to deliver a healthy ~18% compound annual growth rate in assets under management and ~26% CAGR in profit after tax over FY24-26, with an return on asset/return on equity of 2.4%/13.0% by FY26.

The company trades at 1.1 times FY26E price/book value, and the risk-reward is favorable for a further re-rating in the valuation multiple as investors gain more confidence in its sustained execution in retail (both prime and affordable). Reiterate Buy with a target price of Rs 1,000 (based on 1.4 times FY26E P/BV).

Key risks:

1. a slowdown in the economy leading to lower demand for housing and moderation in loan growth, and

2. subsequent seasoning in the affordable loan book leading to asset quality deterioration.

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