PNB Finance and Industries Limited: Global brokerage UBS has started coverage on PNB Housing Finance with a ‘Buy’ rating and a target price of Rs 1,300, representing a 17 per cent potential upside from Thursday’s closing of Rs 1,110.6. The company mentioned that top asset under management (AUM) growth, better loan mix, and product diversification were some of the major triggers for potential re-rating in the future.
PNB Housing Finance shares were climbing close to Rs 1,129.50 on Friday, up 4.3 points on the day, and are now just short of their 52-week high of Rs 1,202. The stock has appreciated more than 30 per cent over the last three months and is up 84 per cent over the last two years, indicating sturdy medium-term momentum.
Why is UBS bullish?
UBS is estimating a 16 per cent CAGR in AUM during FY25-FY27, driven by the firm’s emphasis on emerging and affordable housing segments. The proportion of non-prime loans in the book is likely to rise from 25 per cent in FY25 to 40 per cent by FY27, a change that could improve margins and meet underserved demand.
Three growth drivers were highlighted:
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Emerging/affordable segments will comprise 38 per cent of the loan book in FY27 and deliver 75 per cent of incremental growth.
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The prime segment, while falling in terms of share, will continue to propel 25 per cent of new loan growth.
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The recently introduced developer financing vertical will have minimal near-term impact, but UBS estimates it could emerge as a significant contributor from FY28.
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To lend support to this momentum, PNB Housing is targeting to increase its branch network from 356 to 500 by FY27, deepening its presence in mid-market geographies.
Valuation
UBS pointed out that PNB Housing is available at a discount compared to peers, with robust earnings expansion and enhancing return on equity (RoE). In Q4 FY25, the lender posted:
Net profit up 28 per cent YoY at Rs 567.1 crore
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Net interest income up 19.2 per cent YoY
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Gross NPA came down to 1.08 per cent from 1.19 per cent QoQ
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Net NPA decreased to 0.69 per cent from 0.80 per cent sequentially
These numbers highlight better credit quality and effective risk management, providing the stock with fundamental support at higher levels.
Technical view
Technically, the RSI of PNB Housing Finance is 62.2, which means the stock is near overbought levels. But it still remains above its 20-day, 50-day, 100-day, and 200-day moving averages, which indicates strong upward momentum.
Buy, hold, or sell?
With UBS starting coverage and estimating a 17 per cent upside, analysts consider PNB Housing to be a consistent compounder in the financial sector. Transformation of the loan book of the stock, growth in earnings, and expansion of branches make it attractive to medium and long-term investors.
Although short-term gains might be tempered because of overbought technicals, the overall form remains bullish and hence a buy-on-dips stock.
