Graphic: Naveen Kumar Saini/Mint
Graphic: Naveen Kumar Saini/Mint

PNB Housing Finance’s Q2 results provide comfort, but liquidity is key

The PNB Housing Finance stock came under pressure with other NBFC stocks during September when liquidity concerns pummelled NBFCs

PNB Housing Finance Ltd managed to dispel some of the fears over its liquidity position by reporting strong September quarter earnings. Helped by a healthy 43% growth in assets under management, the home loan lender reported a net profit growth of 33% and a core income growth of 25.4%.

That said, its disbursals slowed to 14% from 25% in the previous quarter, indicating that the lender is not on a firm footing in terms of liquidity.

In fact, analysts believe its disbursals may slow further owing to pressure on liquidity.

PNB Housing Finance has an ALM (asset liability management) gap of 530 crore in the one- to three-month tenor and a cumulative gap of 900 crore in less than one year tenors. In other words, the firm will have to get close to 900 crore liquidity to keep its loan growth going.

Analysts at Jefferies India Pvt. Ltd noted that the share of commercial papers (CPs) in the overall borrowing of PNB Housing Finance fell to 13% from 17%.

This coupled with the fact that the lender was able to raise more than 6,000 crore through CPs in the last one month should give investors comfort.

Nevertheless, the cost of borrowing has gone up and that would crimp margins and spreads. The management has guided spreads to be 205-215 basis points.

That brings us to the bad loan position. PNB Housing Finance has had a pristine bad loan ratio and continues to do so. Its gross bad loans as a percentage of the loan book were just 0.45%.

This could be threatened because it has an exposure of 280 crore to Supertech Ltd, a distressed developer. The exposure is categorized as standard.

The non-housing loan book has grown faster at 54% led by loans against property and construction finance. While the loan book is diversified, the lender has seen faster growth in the riskier part of the book.

The PNB Housing Finance stock came under pressure with other NBFC (non-banking financial company) stocks during September when liquidity concerns pummelled NBFCs.

The fall of 30% since September in the PNB Housing stock has made valuations modest and it trades at a multiple of 1.7 times its estimated book value for FY20.

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