PNB Housing Finance Hits 6-Year High: Stock Crosses Rs 1,000 Mark—Here’s What’s Driving the Surge

Introduction to PNB Housing Finance

 PNB Housing Finance (PNBHF) is a housing finance company registered under the National Housing Bank and the Companies Act, of 1956. As a deposit-accepting entity, PNBHF primarily provides housing loans to individuals for purchasing, constructing, repairing, and upgrading houses. Additionally, it offers loans against property, commercial property loans, residential plot loans, and real estate development loans—though no new sanctions have been made for real estate development loans since April 2019. The company operates a wide network of 303 branches across major metros and Tier I and Tier II cities in India, with 160 branches dedicated to its affordable housing segment as of June 30, 2024.

A Key Player in Housing Finance

With a robust AUM (Assets Under Management) of Rs 725 billion in Q1FY25, PNB Housing Finance stands as one of the leading players in the Indian housing finance market, boasting an operational history spanning over three decades. The company has navigated through various business cycles and established a significant presence nationwide. The recent equity infusion of approximately Rs 25 billion in FY24 has further strengthened its financial position, enabling the company to expand its franchisee and enhance its market footprint.

Strategic Shift Towards Affordable Housing

In February 2023, PNB Housing Finance entered the affordable housing finance sector, focusing on growing this yield-accretive business segment despite the higher associated operating costs. This move aligns with the company’s broader strategy to diversify its portfolio, with a marked reduction in its wholesale book proportion—from 6% of AUM in FY23 to 3% in Q1FY25—achieved through loan sales, accelerated repayments, and the sale of non-performing assets (NPAs) to Asset Reconstruction Companies (ARCs).

Improving Asset Quality and Declining Credit Costs

PNB Housing Finance has seen a substantial improvement in its asset quality, with headline gross NPAs falling to 1.35% in Q1FY25, down from 1.5% in FY24 and a staggering 8% in FY22. Retail NPAs have similarly improved, dropping to 1.4% in Q1FY25 from 2.6% in FY23 and 3.9% in FY22. The company’s corporate NPA levels have also seen a dramatic reduction, with the portfolio now showing zero corporate NPAs compared to 3.3% in FY23 and 22.2% in FY22, driven by strategic sales to ARCs and substantial write-offs.

Notably, during FY23 and H1FY24, PNBHF offloaded Rs 9.7 billion worth of corporate NPAs to ARCs. In 2QFY24, the sale of a large NPA with a principal amount of Rs 7.8 billion was executed on a cash basis without a haircut, resulting in a write-back of Rs 2 billion in provisions. The company also saw recoveries from previously written-off accounts amounting to Rs 0.8 billion in Q1FY25, further enhancing its financial position.

Stock Performance: A Remarkable Surge

PNB Housing Finance’s stock has recently achieved a significant milestone, reaching a six-year high and surpassing the Rs 1,000 mark. This achievement places the stock firmly within the four-digit club, marking a substantial turnaround in investor sentiment. The stock is currently trading above its 20, 50, and 200-day moving averages, all of which are on an upward trajectory and in the desired sequence, indicating strong bullish momentum. So far, in 2024, the stock has gained an impressive 28.5%. 

Key Tailwinds Driving the Stock

Several factors are contributing to PNB Housing Finance’s recent stock performance:

1. Equity Infusion and Strategic Expansion: The substantial capital infusion in FY24 has bolstered PNBHF’s balance sheet, enabling further expansion into high-growth segments like affordable housing.
2. Reduction in NPAs: The significant decline in both retail and corporate NPAs has enhanced the company’s credit profile, resulting in lower credit costs and healthier asset quality.
3. Improved Financial Health: Efficient NPA management, strategic sales to ARCs, and substantial recoveries have positioned the company for robust financial performance.
4. Favorable Market Positioning: With strong fundamentals, a well-diversified portfolio, and a solid track record, PNBHF is well-positioned to leverage the growing demand in India’s housing market.

Conclusion

PNB Housing Finance’s impressive rise past the Rs 1,000 level is a testament to its strategic initiatives, improved financial metrics, and growing investor confidence in the company’s long-term prospects. With a renewed focus on affordable housing and a robust approach to asset quality management, PNBHF appears well-equipped to sustain its growth trajectory, offering significant value to its shareholders in the coming years.