The bank, which holds 32.8 per cent stake in PNB Housing, decided to sell its holding as part of its capital raising plan, that is, to raise funds from its non-core assets.
The sale process, which has been on for a year, is yet to fructify. Going by news reports, PNB Housing’s expensive valuation was initially a hurdle. This has been largely corrected, thanks to the ongoing liquidity squeeze for NBFCs.
From a 1-year forward price-to-book value (P/BV) multiple of 2.8 times, which the stock commanded until six months back, the valuation has dropped to less than 2 times the forward P/BV. Further, the housing financier’s fundamentals, too, are getting challenged.
Until the going was good, the company’s relatively high share of non-retail housing loans wasn’t much of a concern.
Now, with the real estate market coming under pressure, investors are turning cautious on PNB Housing’s 31 per cent exposure to non-retail housing loans.
“Developer asset quality has been steady so far, but we have concerns over the overall developer market,” analysts at Jefferies pointed out.
To aggravate issues, the cost of funds (COF) has significantly risen, hurting profitability as a result. Given that commercial papers and non-convertible debentures account for 41 per cent of PNB Housing’s funding structure (down from 60 per cent a year ago), COF in the December quarter (Q3) rose to 8.5 per cent, from 7.9 per cent in Q2.
Net interest margin fell to 1.8 per cent in Q3, down 40 basis points sequentially.
Following the weak industry trend, PNB Housing’s disbursements grew only a per cent year-on-year in Q3, partly explaining the fall in profitability.
With the operating climate remaining tight, more so for housing financiers, it may take a while for the firm’s financials to strengthen.
Whether its parent company will settle for lower valuations to seal the deal, needs to be seen. If the stake sale concludes at a meaningful premium, the PNB Housing stock may once again regain its popularity among investors.
Until then, experts believe the stock is on shaky ground.