PNB Housing Fin – Fast Growing HFC

Q4FY24 Con-call Notes:

Loan Book and Disbursements

Q4’24 & FY24 performance

• Company continues its stated objective of growing its retail book and running down its corporate book.
• As of 31st March 2024, retail loans form 97% of loan book (balance 3% being corporate).
• Recent performance w.r.t. disbursement and loans is as below: –

• Retail segment now consist of 3 verticals:

(a) Prime: Currently 97% of retail loan book; grew at 4% QoQ; Avg ticket size = 35Lakhs; targets 9-10% yield
(b) Affordable: Currently 3% of retail loan book; grew at 56% QoQ; contributed to 12% of total retail disbursements in Q4’24; Avg ticket size = 15Lakhs; targets 11-13% yield, 1/3rd customers new to credit.
(c) Emerging: Business to start from Q1’25, focus on high yielding (10-11%) part of Prime business in Tier 2/Tier 3 cities

Guidance on growth

• Around 17% growth projected on retail loan book for FY 25.
• One of the key factors driving growth will be the additional 100 branches opened between Dec ‘23-Mar ’24 (60 in affordable vertical, 22 in emerging & 18 in prime).
• As per management the FY24 business was practically from 200 branches, while FY 25 will be from 300 branches.
• Each of these verticals will have there own credit, sales & collection teams.
• As to why can’t growth be higher (esp. since currently leverage is quite low), management says it wants to maintain the asset quality and NIM levels.
• 40-45% of retail business in FY25 is likely to be from affordable & emerging verticals (which are relatively higher yield)
• Plan to start re-growing corporate lending business from H2’FY25 (the plan is to keep it in single digits as a % of overall loan book)

Profitability related

PAT

• Q4’24 PAT is 439 Cr vs Q3’24 PAT of 338 cores – QoQ sequential jump of 30%
• For full FY24 PAT is 1,508 Cr vs FY23 PAT of 1,046 Cr (these are ex. one off nos.) – jump of 44%.

ROA, ROE & NIM guidance

• FY24 ROA = 2.2% vs FY23 ROA = 1.6%
• ROA guidance for FY25 is 2.1% plus.
• FY24 ROE = 10.9%. Management expects ROE to go back to “reasonable” levels in next 3 years as more and more leverage is added (Note: while they didn’t say what is meant by reasonable level, if one were to guess it probably means 15% to higher teens kind of level)
• NIM guidance for FY25 = 3.5%

Yields and cost of borrowing

• Q4’24 yield = 10.08% vs Q3’24 yield = 10.19%. This drop in yield is due to depletion in Prime loan book, caused by bank transfers etc. due to heavy competition.
• Management expects to improve the yield in FY25 (compared to Q4’24) due to increased focus on Affordable & Emerging verticals.
• The yield from Affordable segments is expected to go up 100 bps from 11.5% to 12.5% in FY25.
• Average Cost of borrowing for FY24 was 8.01%. The management expects it to come down somewhat as they now have been upgraded to AA+ by India Ratings, ICRA & CARE.

Impact of additional branches on Opex

• As per mgmt., there will be “some impact” of opening 100 additional branches, but the higher yields justify it. Opex to ATA was 0.93% in FY24, which might move to 0.95% to 1% in FY25.
• An average branch in the Affordable vertical breaks even in around 8 months.

Asset quality related

• The GNPA trend over the last 12 months has been as follows: –

• A corporate account with a current outstanding loan value of 126 cores moved into stage 2 in Q4’24. The management currently believes that it will remain there or come back to stage 1.
• Management was able to write back Rs.99 crores from the write-off pool in FY 24 (out of which 49 crores came in Q4’24 – this is why credit cost was just 0.04% in this quarter).
• The current write-off pool is 1700 crores (retail) and 500 crores (corporate). As an approximate guidance, management expects 50 crores of write back every quarter for FY25.
• Credit cost guidance for FY 25 is 0.30%. This doesn’t include any write backs that might happen.

(Disclosure: invested with a small tracking position)