PNB Housing Finance IPO – Should You Invest?
Here is another IPO which is large enough to ensure that a majority of retail customers will get allocation. And this one is better than the recent ICICI Prudential Life IPO in the sense that one can expect 10% to 15% appreciation in the near term.
PNB Housing – India’a Fastest Growing Housing Finance Company
- Strong Borrowing Capabilities Enable it to Compete in Crowded Urban Market:
Despite the small loan book size and a relatively shorter history of growth, PNB Housing has always enjoyed best-in-class credit rating, thanks to the parentage of PNB, the 2nd largest state owned bank. This has virtually given it an unlimited access to low cost funding. It is precisely this lower cost of borrowings that have enabled PNB Housing to compete in the crowded urban housing finance market, which is otherwise dominated by large HFCs like HDFC & LICHF and commercial banks.
- Freedom of Private Sector Entity despite having PSU Parentage:
Despite being owned by a state owned bank, PNB Housing enjoys operational freedom in line with the private sector counter parts. PNB Housing is run by professional management, having earlier worked with reputed organizations like HDFC and GRUH Finance. This has ensured that PNBHF has a robust technology platform, a well distributed hub & spoke model and market based incentive structure. A culmination of all this is razor sharp focus on business, loan book CAGR of 62% over FY12-16 and GNPAs under 0.5%.
- Valuations Not Cheap in the Light of Lower-than-peer Profitability Profile:
As a conscious strategy, PNBHF has preferred growth over profitability. Approximately 40% of its lending is towards the high yielding non-housing segments. Despite this & the best-in-class liability profile, its margin profile is inferior when compared to other housing finance companies like HDFC, Repco and CanFin Homes. Valuations at 2.0x FY18E book are rich and do not leave more than 15% upside in the near term.
GreenEdge Wealth Services View
We don’t have a favorable view on this stock for the long term for the simple reason that its business model has high dependence on declining interest rates. Another reason is PNB Housing operates in large cities and residential real estate in large cities is expected to remain slow for many more years. Instead, we find companies operating in small housing space like Repco more attractive for the longer term.
However, one may subscribe to the IPO for listing gains of 10% to 15%.
Issue Details
| Issue Open Date | 25th Oct, Tuesday |
| Issue Close Date | 27th Oct, Thurs |
| Issue Price (Rs.) | 750 to 775 |
| Market Lot | 19 |
| Minimum Application Size for Retail (Rs.) | 14,725 |