Home >Markets >Mark To Market >PNB Housing Finance’s valuations fail to get a growth boost from Q4

Shares of PNB Housing Finance Ltd have languished so far this year, underperforming most of its peer housing finance companies, and there seems to be good reason for this.

The company’s March quarter performance has only added to the pressure on valuations. Net profit for the quarter was 130 crore, far lower than analysts’ estimates. This came on the back of a 13% rise in provisioning against stressed loans.

Indeed, the lender’s stressed loans continued to remain elevated with gross bad loan ratio at 4.4% for the quarter. But there is some relief from the fact that the company has increased provisioning sharply in the reported quarter.

A slow mend
View Full Image
A slow mend

Provision coverage ratio rose to 92.1% from 78% in the previous quarter. The total provisioning buffer has increased three times compared with the pre-pandemic levels. Another relief is that the lender has a restructured loan pile of only 1,723 crore of which a majority are retail loans.

The lender also saw decent cash recoveries through the resolution of a handful of corporate loans during the quarter. Overall, asset quality may show pockets of weakness, but the company seems to be on the mend.

The management’s commentary on asset quality was also reassuring. While the company has warned that the impact of the second wave would be seen in the coming months, it does not foresee a sharp rise in provisioning in FY22. Moreover, analysts said the lender is adequately protected through higher provisions.

Analysts at Motilal Oswal Financial Services Ltd point out that PNB Housing’s provisions for stage 1 and 2 loans are the highest in the industry.

What bothers investors is the lack of growth, with assets under management (AUM) showing the highest ever decline of 10.7%. The lender’s loan book has been declining for six straight quarters too now. The impact of the pandemic in FY21 was stark on the lender’s balance sheet. The management has indicated that the slowdown is also partly by design.

PNB Housing has consciously slowed down lending to avoid riskier opportunities. Even as AUM has shrunk, disbursements of retail loans have galloped on a sequential basis in the March quarter. This is a healthy sign and the company said that AUM growth will bounce back in FY22.

Analysts, however, said it may take longer. “From FY23, the company would be in a position to grow its loan book by 9-11% year-on-year," wrote Motilal Oswal analysts in a note.

Needless to say, the company’s valuations may remain under pressure as the second wave of the covid-19 pandemic threatens loan growth.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
My ReadsRedeem a Gift CardLogout