Last updated on November 12, 2021
Earlier this week, SEBI cleared the decks for PNB Housing IPO, expanding India’s IPO Pipeline to 16. The new IPO of Punjab National Bank’s (PNB) housing finance subsidiary will be closely observed by investors who have lately suffered losses in the recent IPOs of HPL Electric, ICICI Prudential Life Insurance and L&T Technology Services. Apart from the fact that it comes from a big name (we are reminded that ICICI Prudential Life and L&T Technology were also from big names), it helps that PNB Housing Finance is related to a theme that is currently in demand. Finance stocks, specifically those of lending firms, are trading high even with heightened volatility.
While the company has potential to reward investors, it is always a good idea to adopt an analyst’s vision and look for potential areas of concerns. Here are the key points to know about the company before applying to PNB Housing IPO:
Blue Blooded Parentage – PNB Housing Finance is promoted by India’s second largest bank Punjab National Bank’s and also counts American private equity giant Carlyle as a major investor. PNB owns 51% in the housing finance company while Carlyle owns the remaining stake that it received from Destimoney Enterprises’ acquisition in February 2015.
Nationwide Player – According to the draft prospectus, the company is the fifth largest housing finance player in India after Housing Development Finance Corporation (HDFC), LIC Housing Finance, Indiabulls Housing Finance and Dewan Housing Finance by loan portfolio as of 30 September 2015. It footprint includes a network of 47 branches and 16 processing hubs, including a Central Support Office (CSO) in New Delhi as of 31 March 2016. Apart from its own network, the company’s distribution network included over 5,000 channel partners across different locations in India as of 31 March 2016.
Strong Business Growth – In its IPO prospectus, PNB Housing Finance said it witnessed a CAGR of 61.7% in its total loan portfolio between FY2012 and FY2016. During this timeframe, its loan book grew from INR3,969.6 crore to INR27,177.2 crore.
Low NPAs – With rapid expansion in business, it is generally observed that key parameters such as margins, turnaround time etc often take a backseat. Not with PNB Housing Finance and on the contrary, asset quality of its loans has improved. Non-performing assets (NPAs) – as they are called in banking system – reflect the loans which remain defaulted for a specific time and are considered non-recoverable. For PNB Housing Finance, its gross NPAs stood at just 0.22% of its total loan portfolio in FY2016. This is one of the lowest NPA values among major housing finance players in India.
Improved profitability – Thanks to a good show on the NPA front, it is natural that PNBHFL’s profits also improved in these years. PNB Housing posted a net profit of INR327.5 crore for FY2016, up 68.7% from INR194 crore in FY2015. Net Interest Margin (NIM), measured as a ratio of net interest income (NII) to the average of interest-earning assets, improved to 2.98% in FY2016 from 2.94% in FY2015. Similarly, Return on Net Worth (RONW) stood at 17.6% in FY2016, marking an improvement from 15.45% in FY2015.
IPO Size and use of proceeds – The company plans to raise INR2,500 crore by issuing new shares in the forthcoming IPO. As we reported earlier, this means neither PNB nor Carlyle will be selling their shares and there will be no offer for sale (OFS). These funds will be used to augment PNBHFL’s capital base and for general corporate purposes.
Departure from parent – PNB Housing comes from the house of a public sector bank which is a space traditionally recognized for being late in adopting new technology and ideas. Not so for PNB Housing which has credited a business process transformation and re-engineering (BPR) program for its success. Under the program, the company has implemented an integrated information technology platform, undertook human resource initiatives such as implementation of a new performance management system with rewards and recognition programme and salary revisions in line with the market. While its parent has no active ESOP (employee stock option program) as of now, PNB HFL granted 3,807,690 options in April 2016 under its newly launched ESOP.
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On the surface of it, PNB Housing IPO looks a promising company; however a lot will depend on the IPO’s pricing. While the market has rewarded high valuations in the case of Dr Lal Path Labs and Manpasand Beverages, it is important to remember that it was one way up at the time of these IPOs but volatility is the norm of the day currently. As celebrated US mathematician Prof. Beniot Mandelbrot said in his pioneering book The (Mis)Behavior of Markets, the trouble runs in streaks and thus, we have every reason to be extra careful during bull markets.
In the coming days, we will publish our analysis of the upcoming offer but feel free to head to this discussion page on PNB Housing IPO to get an idea what the investor community thinks about the offer.
