PNB Housing is India’s 4th largest housing finance company (HFC) behind HDFC Ltd., LIC Housing and Indiabulls Housing, with a loan book of Rs. 62,250 cr (31.3.21). Even on such a large book, company earns double-digit yields, as 96% of disbursements last year were towards retail borrowers, with extremely healthy NIMs of 3.3% (over HDFC 3.5%, LIC 2.7%).

While company was looking to raise Rs. 1,800 cr, it has now announced a bigger infusion of Rs. 4,000 cr from existing investor Carlyle, with General Atlantic also participating. As net worth will increase from Rs. 8,923 cr to Rs. 12,923 cr, FY22E PBV will be about 1x even after yesterday’s 20% surge, which is very attractive as:

1. Carlyle will be the single largest shareholder with 50% stake (excld open offer portion, which may not find takers at Rs. 403), removing the indirect PSU-controlled tag from promoter PNB, which may look to eventually monetise its stake.
2. Non-institutional retail float will shrink further to 4.6% from 7.3% (31.3.21), leading to some premium valuation.
3. Mr. Aditya Puri joins company’s board as a representative of Carlyle, besides investing Rs. 25 cr for 0.24% stake in his personal capacity.   
4. Company is already headed by former SBI Cards chief Mr. Hardayal Prasad, a career banker. Last hurdle of fund raise being behind the company will help accelerate loan disbursement. During earlier better days, PNB Housing used to command PBV multiple as high as 2.5x.

RBI overhang of not permitting PNB to infuse the latter’s share of Rs. 600 cr is now behind PNB Housing Finance. Post infusion, while PNB’s holding in the company will fall from 32.6% to 20.3%, value of this stake has risen from Rs. 2,100 cr to Rs. 2,900 cr, giving it a straight-forward 38% gain, which may increase further due to positive re-rating of PNB Housing!

Keep an eye on both PNB Housing and promoter PNB, as the fund raise is a win-win for both.

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