After more than doubling (since its listing in November 2016) and hitting a 52-week high of ₹1,715 in August 2017, the stock of PNB Housing Finance was already in price correction mode by 2017-end and closed the year at ₹1,340 as valuation looked stretched.

The stock fell a further 10 per cent between January-mid and February as sentiment got hit due to the Punjab National Bank-Nirav Modi scam since PNB owns 33 per cent in the company. However, the stock has since recovered and gained around 17 per cent.

The stock is now likely to see a time correction despite good financial performance in FY18 (including March 2018 quarter). This is because the past robust growth rates will be difficult to achieve on a high base. Besides, valuation stands high at 3.2 times and 2.7 times FY19 and FY20 estimated book value, respectively — higher than most banks today — and factors in the superior growth trajectory.

The view of brokerages on the stock are divided. JM Financial and Nirmal Bang are bullish and expect upside of between 15 per cent and 20 per cent with the average target price estimated at about ₹1,660. “PNB Housing has been gaining significant market share over the past six years (increased from 0.5 per cent in FY12 to 1.9 per cent in FY18), driven by deeper penetration in existing markets and rapid geographic expansion into newer markets; we expect strong growth to continue. We forecast net profit CAGR of 37 per cent over FY18-20E, led by strong loan growth and steady asset quality,” said JM Financial.

However, Kotak Institutional Equities and Antique Stock Broking expect the stock to remain in a tight range of ₹1,350-1,400. According to Antique, the company would struggle to grow at a fast pace without sacrificing margins. It does not see the company’s return on assets and return on equities exceeding 1.6 per cent and 16 per cent, respectively. Thus, the stock could witness resistance with valuation in excess of 2.5 times, it said.

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