PNB Housing stock hits ceiling for second day

The proposed large equity infusion —led by the Carlyle Group — in PNB Housing Finance (PNBHF) has set the stock prices of this housing finance company on fire with a two back-to-back 20 per cent jump (upper circuit) in each of last two days to close at ₹630.75 on Tuesday. In the last five days, the stock has gained 56 per cent.

Brokerages and foreign investment advisory firms gave a thumbs up to the PNBHF’s Board approval for preferential issue as it reduces the overhang on much awaited equity infusion and/or stake sale.

This large equity infusion of about ₹4,000 crore should significantly improve confidence of debt markets and equity markets and bring back PNBHF back on growth path, Morgan Stanley said in a research note, while upping the price target for the stock to ₹600.

‘On turnaround path’

“We believe this capital infusion could materially accelerate the business turnaround,” said the Morgan Stanley equity analysts Subramanian Iyer, Sumeet Kariwala and Rahul Gupta in their research note.

It may be recalled that PNBHFL stock had nosedived to ₹141.90 in March 2020 from a closing high of ₹1,686.35 in August 2017.

With Carlyle and its affiliated funds set to invest up to ₹3,185 crore (out of the planned ₹4,000 crore capital raise), there is optimism that business turnaround will be round the corner as uncertainty on capital infusion is now sorted out.

Betting on Aditya Puri

ICICI Securities said that Carlyle raising its stake to 50 per cent and PNB‘s stake to be down to 20 per cent (not expected to go below this) will put to rest the overhang of any further stake sale in the interim. Another notable positive trigger for the counter is Aditya Puri‘s nomination to the board as it will lend considerable credence to the company‘s business transition and strategic intentions, according to ICICI Securities, which has put the target for the stock at ₹678 while upgrading it to ‘buy’ from ‘hold’.

“Strengthening of the Board, management, governance and risk management, coupled with scarcity premium, can drive rerating to 1.2 X FY 23E book. Upgrade to BUY with a revised target price of ₹678 (₹385). key risks: 1) business transitioning taking longer than expected and 2) corporate book stabilisation and resolution of stress would be key monitorable,” the ICICI Securities note added.

It also said that the capital buffer (CAR of greater than 28 per cent) is enhanced to adequately face the potential stress due to Covid disruption, and gradually improve visibility on rating upgrade.

Strategically, business transformation is underway with new agenda to target mass retail housing, build the high-yield Unnati portfolio and drive efficiency through cost management. However, in the interim transitioning phase, growth and ROE will be modest.

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