PNB Housing Finance rating- Buy: Fund-raising to bring triggers in its wake

Strategically, enterprise transformation is underway with new agenda to focus on mass retail housing, construct the high-yield Unnati portfolio and drive effectivity via value administration.

PNB Housing Finance’s (PNBHF’s) Board approval for preferential concern, to boost Rs 40 bn @ Rs 390 per share, reduces the overhang on a lot awaited fairness infusion and/or stake sale. It additionally brings with it just a few notable constructive triggers: (i) Carlyle elevating its stake to 50% and PNB’s stake to be down to twenty% (not anticipated to go beneath this), placing to relaxation the overhang of any additional stake sale within the interim; (ii) Aditya Puri’s nomination to the Board will lend appreciable credence to the corporate’s enterprise transition and strategic intentions; (iii) capital buffer (CAR of >28%) is enhanced to adequately face the potential stress resulting from Covid disruption, and regularly enhance visibility on ranking improve.

Strategically, enterprise transformation is underway with new agenda to focus on mass retail housing, construct the high-yield Unnati portfolio and drive effectivity via value administration. Nonetheless, within the interim transitioning section, progress and RoE might be modest. Given fairness dilution of greater than 60% and that too beneath guide worth, it will be dilutive to the extent of 10% to guide worth and 25-30% to EPS and would reasonable RoEs additional to 10% (from 12%).

Strengthening of the Board, administration, governance and danger administration, coupled with shortage premium, can drive re-rating to 1.2x FY23E guide. Improve to Purchase with a revised goal worth of Rs 678 (earlier: Rs 385). Key dangers: (i) Enterprise transitioning taking longer than anticipated; and (ii) Company guide stabilisation and backbone of stress could be key monitorable.