Despite high valuations, analysts bullish on PNB Housing Finance IPO


PNB Housing IPOAnalyst view on PNB Housing Finance IPO is positive as multiple brokerage houses have recommended investors to subscribe to the IPO that opens tomorrow for subscription. The fifth largest housing finance company in India, which is 49% owned by Carlyle Group,  has been growing at a blistering pace and analysts have bought this growth story even though aggressive valuations have led to an alternate view that returns from the IPO may not match the performance of other recent offers such as Endurance Technologies. For more details about the IPO and to check public perception and sentiments, head to PNB Housing Finance discussion page. Here is a sampling of what experts on Dalal Street think of the IPO.

In its research report on the PNB Housing Finance IPO, ICICI Direct recommended investors to Subscribe to the offer. “At the IPO price band of 750-775, the stock is available at a multiple of 2.5x FY16 ABV (post issue) at the upper end of the price band. Post issue market capitalisation is at ~| 12836 crore. Given robust advances growth, best asset quality among peers and foray in the affordable category housing finance segment, the future outlook remains favourable. Therefore, we recommend that investors SUBSCRIBE to the issue,” said the research note.

Subscribe is also the analyst view on PNB Housing Finance IPO at Ajcon Global. The brokerage house listed several reasons such as under-penetrated mortgage market, strong parentage, independent professional management and an autonomous board, diverse and cost effective funding mix with average cost of borrowing at 8.65%, lowest GNPAs amongst peers in India at 0.27%, efficient capital utilization for recommending the offer.

“PHF has reduced its dependence on term loans and diversified the source of borrowing across NCD, commercial paper. The move has reduced the cost of borrowing significantly (8.6% in FY16 v/s 9.3% in FY14). Having a AAA rating, the company will continue to tap bond market with low interest rate which will help it to improve,” noted Choice Broking, reaffirming positive analyst view on PNB Housing Finance IPO.

Angel Broking has also taken a positive view of the IPO with a subscribe recommendation. “PNBH has delivered RoE of 17.6% on the pre-issue net worth. While the IPO will result in RoE compression, this will give the much-required fund for growth. At the upper price band, the issue is offered at 4.6x its FY16 BV. However, at the post issue BV of ‘311, it is offered at 2.5x. Looking at the quality of management, which can drive the growth, we recommend a SUBSCRIBE to the issue,” said its research note.

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IIFL is also among the brokerage houses with positive analyst view on PNB Housing Finance IPO. “Capital raising and cost optimization would raise ROA to 1.5% by FY18. We expect PHF to deliver 45%+ earnings CAGR over FY16-18. At the upper price band, valuation is mildly attractive at 2.1x FY18 P/ABV and 18X FY18 P/E. It is lower than large HFCs and at a sharp discount to niche players like Can Fin and Repco. We recommend subscribing into the IPO with the expectation of healthy long-term investment returns,” noted its report.


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