25 Oct PNB Housing Finance IPO: 5 Things To Know Before You Invest
PNB Housing Finance IPO: 5 Things To Know Before You Invest
PNB Housing Finance, India’s fifth largest housing finance company according to asset size, is seeking to raise Rs. 3,000 Crores from the primary market through its initial public offer (IPO), which opened today.
PNB Housing Finance, India’s fifth largest housing finance company according to asset size, is seeking to raise Rs. 3,000 Crores from the primary market through its initial public offer (IPO), which opened today. PNB Housing Finance’s IPO will close on Thursday (October 27). The issue can be subscribed in a price band of Rs. 750-775 and in lot sizes of 19 shares.
Here are 5 things to know about the company:
1) Through this IPO, PNB Housing Finance is raising Rs. 3,000 Crores by selling 3.9 Crores shares. The proceeds of the IPO will boost its tier-1 capital, which is currently at around 9 per cent, the lowest among its peers. After this issue, its promoter Punjab National Bank’s stake in the company will come down to around 38-39 per cent from 51 per cent now. Private equity fund Carlyle Group holds 49 per cent stake in the company.
2) PNB Housing Finance offers home loans (61 per cent of loan book), loan against property (18 per cent), builder loan (13 per cent) and loans for non-residential premises (8 per cent). Its higher average ticket size of Rs. 32 Lacs (compared to Rs. 22 Lacs for HDFC, Rs. 21 Lacs for LIC Housing and Rs. 11 Lacs for DHFL) and loan to value (LTV) of 66 per cent has contributed to its rapid growth over past 4 years. However, its cost to income ratio at 30 per cent is the highest among its peers as it secures 45 per cent of its business from direct sales agents.
3) PNB Housing Finance’s loan book has grown at a CAGR of 61 per cent over last 4 years to Rs. 25,641 Crores in FY16. The mortgage lender had reported a net profit of Rs. 328 crore on net interest income (NII) of Rs. 684 Crores in FY16. Its net profit and NII has witnessed a CAGR of 43.4 per cent and 51.7 per cent respectively over last four years. Despite strong loan growth in the past few years, it has managed a strong asset quality with gross non-performing assets as a percentage of total loans at 0.22 per cent and net non-performing assets ratio of 0.14 per cent.
4) At the upper end of the price band of Rs. 775, PNB Housing Finance shares are valued at 2 times its estimated (Angel Broking estimates) FY18 book value. This compares with 2.4 times for LIC Housing Finance, 2.8 times for Indiabulls Housing Finance, 1.5 for DHFL. Angel Broking has a “subscribe” rating on the issue. The brokerage also sees an improvement in its cost-to-income ratio going ahead, which will improve its profitability further. “PNBH is all geared up for its next leg of growth and has the potential to become a significant player in the Indian mortgage business,” the brokerage said.
5) PNB Housing Finance has delivered a return on equity of 17.6 per cent on the pre-issue net worth. However, Angel Broking expects its return on equity to drop to around 14.5 per cent by FY18, after the fund raising. But over a long term, its RoE will bounce back to existing level as its cost ratios improve, the brokerage added. Going ahead its nonperforming assets could rise due to its faster loan growth the mortgage lender has witnessed, say analysts.
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