2 min read.Updated: 31 May 2021, 10:32 PM ISTAparna Iyer
The firm’s shares have not reached pre-pandemic highs, although most peers have crossed theirs
The lender’s loan book is now 67% retail, as it continues to shrink its developer book
A fund infusion by marquee investors did what a frenzied rally in equity markets couldn’t do for shares of PNB Housing Finance Ltd. The company’s shares surged 20% on Monday after its board approved raising ₹4,000 crore in capital from the Carlyle Group and a handful of other investors through a preferential share issue.
Through this infusion, Carlyle will increase its stake in the company to 30% from the present 26%. Other investors include Aditya Puri, former chief executive of HDFC Bank Ltd.
Puri is likely to be nominated to the board, PNB Housing Finance said in a release. Punjab National Bank Ltd (PNB) will remain the promoter, albeit with a diminished shareholding.
PNB Housing Finance’s balance sheet has been under pressure because of a troubled real estate sector. Lumpy exposures to stressed developers had cast a shadow over its valuations and its balance sheet strength in the past few years. The pandemic has made it worse. As the adjoining chart shows, the lender has witnessed a contraction in assets under management (AUM) and a simultaneous rise in bad loans.
Indeed, the lender’s valuation has eroded a massive 66% during FY19-FY21 because of this. Following this decline, the current share price is lower than the issue price of its initial public offer (IPO) in October 2016.
For the March quarter, AUM showed the highest-ever decline of 10.7%. Much of this was by design, as the lender sought to shed troubled wholesale loans and increase the share of retail.
The lender’s loan book has been declining for six straight quarters now. The pandemic made it worse in FY21 and the company ended the year with a gross bad loan pile of ₹2,762 crore or 4.4% of total book. Bad loans were below the 1% mark just three years ago.
Given these troubles, the firm’s shares have not been able to revisit pre-pandemic highs, although most peers have crossed these levels. It is clear that the company requires capital to not just grow but also fix its loan book.
The fundraising comes at an opportune time for the lender. After languishing for several years, the real estate industry is now showing signs of revival. Several state governments have extended tax sops to the real estate industry to boost sales.
Along with low interest rates, demand for homes is expected to increase. Given that the lender has beefed up its provisions considerably and reduced the stressed developer book, a large part of the funds raised is likely to support growth.
That said, analysts believe that near-term challenges from the pandemic won’t disappear.
“I think getting new investors such as Carlyle is good in the long run. But they have to fix the book as they still have lumpy exposure to developers. In the near-term, there are still challenges," said Anand Dama, analyst at Emkay Global Financial Services Ltd. The lender’s loan book is now 67% retail, as it continues to shrink its developer book.
While the fund infusion news was enough to pump up the shares by 20%, the lender needs to show a steady improvement in its metrics for valuations to sustain. PNB Housing Finance’s stock trades at a discount to its estimated book value for FY22 even after Monday’s sharp jump in share price.
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