PNB Housing Finance IPO review (May apply)

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Review By Dilip Davda on October 20, 2016

PNB Housing Finance Ltd (PNBHFL) is the fifth largest housing finance company (in terms of loan portfolio) and the second largest (in terms of deposits) promoted by Punjab National Bank (PNB). The company is engaged in housing loan finance business having 51:49 investments from PNB and Carlyle Group. The Company conducts operations through an operating model which, as of June 30, 2016, included 47 branches across the northern, western and southern regions of India and 16 processing hubs (which include three co-located zonal offices) and central support office (“CSO”) in New Delhi. Its distribution network included over 7,110 channel partners across different locations in India as of June 30, 2016, including in-house sales team as well as external direct marketing associates (the “DMAs”), deposit brokers and national aggregator relationships with reputed brands. As part of the Business Process Transformation & Re-Engineering, the Company repositioned the “PNB Housing” brand, which required all offices to be revamped, creation of our new logo and its tagline, “Ghar Ki Baat”, the re-launch of refreshed, mobile-friendly website, an increased online presence and new marketing communication to enhance brand image.

To augment its capital base to meet its future capital requirements, the company is coming out with a maiden IPO of approx. 38709700 shares (based on higher price band) via book building route having a price band of Rs. 750-775 to mobilize Rs. 3000 crore. Minimum application is to be made for 19 shares and in multiples thereon, thereafter. Issue opens for subscription on 25.10.16 and will close on 27.10.16. It has earmarked 250000 equity shares from the IPO for eligible employees who will be offered a discount of Rs. 75 per share. Having issued equity at par during 1988 to 1999, it further issued equity at a price ranging from Rs. 101.50 to Rs. 130 per share as rights issue and has also issued 6470589 shares as bonus shares in March 2013. There is no stake sell by any existing stakeholders. Its current paid up equity capital of Rs. 126.92 crore will stand enhanced to Rs. 165.63 crore.

The GCBRLMs to the Issue are Kotak Mahindra Capital Company Limited, DSP Merrill Lynch Limited, JM Financial Institutional Securities Limited, J. P. Morgan India Private Limited and Morgan Stanley India Company Private Limited. Link Intime India Pvt Ltd is the registrar to the issue. Post allotment, shares will be listed on BSE and NSE.

PNBHFL’s loan portfolio grew at a CAGR of 61.76% from Rs. 3969.66 cr. as of March 31, 2012 to Rs. 27177.27 crore as of March 31, 2016. As of June 30, 2016, its loan portfolio had further increased to Rs. 30900.64 crore. For the last three fiscals it has posted total revenue from operations/ net profits of Rs. 1120.32 cr. / Rs. 129.70 cr. (FY14), Rs. 1780.38 cr. / Rs. 194.07 cr. (FY15) and Rs. 2699.54 cr. / Rs. 327.57 cr. (FY16). For Q1 of the current fiscal, it has earned net profit of Rs. 96.03 crore on revenue from operations of Rs. 863.44 crore. If we annualized these latest earnings and attribute to the fully diluted equity post IPO then asking price is at a P/E of 33 plus against industry average of 26 and other peers like GRUH at 48, Repco Home at 33, HDFC at 31, LICHF at 26 and DHFL at 13 (as on 30.09.16). Thus issue appears to be fully priced with coming few years’ estimated earnings. However, with more funds at its disposal post IPO will also help it to have better NAV.

On BRLM’s front, five merchant bankers associated with this issue have handled twenty two public issues in the past three years, out of which nine issues closed below the issue price on the listed date.

Conclusion: As issue appears to be fully priced, Risk savvy cash surplus investors may consider investment for long term.

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