PNB Housing Finance shares rally 14% on rating upgrades; Morgan Stanley pegs 54% upside

Shares of PNB Housing Finance, a subsidiary of Punjab National Bank (PNB), surged over 14% in early trade on Monday amid a slew of positive developments. Global brokerage Morgan Stanley has assigned an 'overweight' rating on the state-owned mortgage lender, with a target price of ₹970 per share, an upside potential of 54% from last closing price. The development came after CARE Ratings and ICRA upgraded the company's long-term ratings, citing its improved asset quality metrics as well as strengthened capitalisation profile.

Cheering the news, PNB Housing Finance shares opened higher at ₹657.45, up 4.5% against the previous closing price of ₹629.30 on the BSE. In the first two hours of trade, the counter gained as much as 14.5% to ₹720.4, while the market capitalisation rose to ₹18,435 crore. On the volume front, there was a surge in buying as 1.25 lakh shares changed hands over the counter as compared to two-week average of 0.23 lakh scrips.

At the day’s high level, the PSU stock trades 21% lower than its 52-week high of ₹913.95 touched on January 25, 2024, while it has risen nearly 79% against its 52-week low of ₹403.28 hit on March 31, 2023. In the last one year, the housing finance stock has gained 59%, while it lost over 4% in six months. In the calendar year 2024, the counter fell 9.5%, while it dipped nearly 2% in a month.

On March 28, ICRA upgraded the company’s rating to “ICRA]AA+”, and revised outlook to stable, citing sustained improvement in PNB Housing Finance’s (PNBHFL) credit profile, driven by the improved asset quality metrics and the strengthened capitalisation profile. The rating also factored in Punjab National Bank’s clear articulation that it intends to remain the sole promoter of PNBHFL and extend financial and other forms of support, when required, to the extent allowed within the regulatory guidance/framework. The PSU lender holds 28.13% stake in PNBHFL at the end of December quarter of FY24.

“The Stable outlook on the rating reflects ICRA’s expectation that PNBHFL would be able to maintain a steady credit profile as it continues to scale up its operations while maintaining a prudent capitalisation. The company is expected to keep benefiting from its association and support from PNB as a promoter,” the agency said in a report.

Echoing the same, CARE on March 29 revised PNBHFL’s rating to “CARE AA+”, with stable outlook, saying that upgrade derived strengths from its improving asset quality, strong market position as the third-largest housing finance company in the country (on loan asset basis as on December 31, 2023), along with a well-diversified resource profile.

The agency in a research note says PNBHFL is increasing its focus on affordable segment under the product name ROSHNI, though it remains at nascent stage. As on December 31, 2023, the loan asset against affordable stood at 1,145 crore, which is around 1.8% of total loan asset of the company. At the end of December quarter of 2023, 100 branches are operational for ROSHNI in the 12 states of India. Going forward, the performance of the affordable portfolio remains a key rating monitorable, it adds.

In the first nine months of the current fiscal (9M FY24), PNBHFL reported a profit after tax (PAT) of ₹1,069 crore, translating into a return on managed assets (RoMA) of 1.9% and a return on average net worth (RoNW) of 10% against ₹1,046 crore, 1.4% and 10.0%, respectively, in FY23.

As of December 31, 2023, the assets under management (AUM) of PNB Housing Finance stood at ₹68,549 crore and the loan book at ₹62,337 crore. The reported gross non-performing assets (NPAs) declined to 1.7% in Q3 FY24, from 3.8% in the same period last fiscal, aided by the sale to asset reconstruction companies (ARCs), write-offs, recoveries, and lower incremental slippages.

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