PNB Housing


Last Week we met the Management of PNB Housing and spend the entire day with the whole top management. We got amazing insights about the housing finance Industry & the road Ahead. These are the 5 main takeaways from the meet.

1)  Opportunity Size – The Run up in Housing Finance Companies has been very strong and we wanted to understand the opportunity as every company is coming out with exciting target’s, for example newly launched Piramal is targeting 15,000 Crores AUM  by FY 2020, Reliance Home has guided to Increase AUM by 57% CAGR from 13000 Crores now to 50,000 Crores by 2020, Kapil Wadhawan of DHFL guided in an Interview last week to more than double AUM from 90,000 Crores to 2,00,000 Crores in 3 years, & Finally Indiabulls Housing finance has guided for 30% CAGR AUM Growth. This is more important as these guidance are coming at a point when the supply to new housing is very weak & most builders are struggling with weak sales.

Sanjaya Gupta, the CEO of PNB Housing and a man who is one of the most passionate 54 year old man i have seen has spent his entire life in the mortgage Industry, told me that there is no doubt that supply is weak in the new retail housing this year due to factors like RERA & Demonetization but a lot of builders have started to line up projects next year, and  FY2018 will be the inflection point for affordable housing in India.  He also added that he will sweat his assets and ensure that they have reasonable growth. The whole Industry is looking towards affordable housing and the same point was repeated by Khushru Jijina on Wednesday on the launch of Piramal Housing finance that FY2018 will be a super Kicker for Housing Finance Companies as affordable housing really starts. We at Stallion Asset always verify the information and we spoke to a few builders in affordable housing & their reply was every top builder in major cities are definitely foraying and betting big on it. The model of Purvankara of having a separate low cost housing subsidiary has been well taken by the market & that’s the model they will work on.


2) Growth – We all know Housing Finance Industry in India has been growing at 18% historically, though the banks have been growing at just 15% and losing market share to Housing finance companies who are growing at 21%, but what about growth ahead. The Question was that if we break up the growth for last 15 Years there was a 10% Growth in Prices of Real Estate & 8% volume Growth, but now that there is no growth in Real Estate Prices, will the Industry be able to grow at 18%? The Answer was affordability for housing has improved as prices have been stagnant for last 5 years and with falling interest rates and subsidies on housing loan, they remain super bullish.

The most Important point i picked up during the Conversation was that only 20% of new registrations for house that happen are new houses (Seller is the builder), and the rest 80% are Consumer to Consumer transfer (Resale).


3) Competition- Since Competition has increased from New HFC’s as well as banks getting aggressive on retail lending, our next concern was will the Spreads sustain? There is pressure on the Salaried Class for spread as government banks are getting aggressive there but self employed remain 50% of Retail book for PNB Housing where competition is limited.


4) Loss Given Default & Credit Risk – We asked that there is a common phenomena and the one that we at Stallion Asset also believe that Profits for an NBFC are Front Ended, Whereas Losses are Back ended.  Sanjaya Gupta Clarified that it all depends on the Credit Quality, and we at Stallion Asset learned from our visit that PNB Housing definitely has the best System in Place for credit Checks. When i asked Jayesh Jain, CFO of PNB Housing about the Loss given default, he told me its about 4% of NPA i.e. if the loan book is 10,000 Crores, assuming NPA is 1% of that i.e. about 100 Crores, in that case only 4 crores is real bad debt, the rest is recovered from selling mortgage.


5) Conclusion – The Growth in Housing Finance going forward is going to be a volume game. Raamdeo  Agarwal of Motilal Oswal who himself runs a Housing finance company (Aspire) gave PNB Housing a thumps up, calling a 1 Lakh Crore ki Kahani. Valuation of most HFC’s are pricing in a pick up in affordable housing, the housing finance story is now depended on affordable housing story, but remember only 20% of housing sold in India is via builders and the rest 80% is by Consumer to Consumer. The conclusion of the meet was that if Affordable housing really picks up the HFC’s would grow at 30%, and if it doesn’t they will grow at 15%.

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Housing Finance as a Theme has been on Fire, this is no secret that we at Stallion Asset are bullish on NBFC Space. Vijay Kedia, in his latest Tweet stated that Housing Finance’ sector could be the next market leader. In His Interview on Budget day on ET Now he said that he is long on LIC housing and wants to enter CanFin Home as well.Vijay Kedia Tweet Housing FinanceThe First person to buy the Housing Finance theme was Basant Maheshwari, (Big Fan of him) way back in 2014. Our understanding from his Interviews is that he is long on PNB Housing and Can Fin Homes. Rakesh Jhunjhunwala, the big Bull is backing


Lets Understand the Housing Finance Space in the next 3 mins.

Housing Finance is an easy business to understand, the company borrows at a Rate, lends at a higher rate, the difference is the gross profit. There are two main cost 1) Operating Cost and 2) Credit Cost (NPA)

Modi Government has been pushing for reforms in Housing finance space with interest subsidy of 4% for loans upto 9 Lakh and 3% on loans upto 12 Lakh. They have also given infrastructure status to affordable housing projects.

Housing Finance has clear tailwind and has an expected growth rate of 20-22% till FY 2020. In Particular the governments push towards affordable housing, reduction in interest rates and rising income level are expected to contribute towards increased housing demand.

Banks or NBFC?

If Money is an commodity, the one with the lowest cost of money should ideally win. Out of the total housing mortgages of 16.6 Lakh Crores in 2016, Housing Finance companies were 6.2 Lakh cr. or 37.5% of market Size. The Share is expected to increase further to 39% by 2020 as per Crisil. The competition is high in High ticket size Loans where banks are big players, whereas NBFC dominate the low ticket size space in the mortgage business. Historically banks have been inefficient on the collection side and have had higher NPA.



HFC to Bank



In Fiscal Year 2017, the estimated gross NPA level for HFCs in the housing loan sector is estimated at 0.50-0.7% while it is slightly higher for banks, at 1.60% clearing showing that NBFC’s have managed their portfolio a lot better than banks.

Which NBFC Should i choose?

We have identified 7 Factors that affect the Valuations of Housing Finance companies.

valuation Housing FinanceWe are now doing peer comparison of housing finance company for Various Factors.

#FACTOR 1 – Growth in AUM – Higher the expected growth in AUM, higher the valuation. PNB housing is the fastest growing HFC, Basant Maheshwari loves growth and hence he has invested there.

Loan Growth Housing Finance

#FACTOR 2 – Gross NPA – Higher the NPA, Lower the Valuation. NPA is affected with asset quality of companies. It is perceived by the market that salaried class doesn’t default as their income is very stable and where self-employed individuals may get affected due to business volatilityCanFin homes has superb asset quality with Gross NPA of just 0.24% and has given 84% loans to Salaried class.

Gross NPA

#FACTOR 3 – NET INTEREST MARGIN – In a commodity business, the one with the highest margin wins, in the housing finance business, money is a commodity. Higher the Net Interest margin, Higher the Valuation.

NIM Housing Finance

Net Interest Margin is a factor of cost of borrowing and price of lending. Indiabulls has the highest NIM’s due to its corporate lending loan book and Loan Against Property. Repco and Gruh have higher NIM because of their presence in lowest income group where competition is lowest from banks. LIC housing finance is the lowest cost borrower, but gives out loans only to salaried class where competition is high.

#FACTOR 4 – Average Ticket Size 

Average Ticket Size Housing Finance

Gruh is the lowest with an average ticket size of only 7 Lakhs as its rural focused whereas PNB has the highest average ticket size due to its Urban Focus. Higher the Average ticket size, higher the competition from banks. NBFC cannot compete with banks on the pricing front as banks have low cost of capital. DHFL has an edge in the low income housing finance as it has immense amount of experience of dealing with the needy.

#FACTOR 5 – Return on Equity – Higher the ROE, Higher the valuation of a housing finance company. Gruh Finance backed by HDFC has the highest ROE of 31.5%, followed by Indiabulls who has high exposure in Corporate loan book.

ROE Housing Finance

Valuation – Housing Finance companies also have perceived character of the Promoter Premium or Discount in their valuation. The Price to Book Ranges from 1.5x Book to 12.3x Book. PE Ratio ranges from 10 to 46. DHFL has the lowest P/B and PE whereas Gruh has the Highest.

valuation Housing Finance

Stallion Asset Take -There is no doubt that Housing Finance is in a multiyear bull market, There is strong Sector tailwind, 2-3x GDP Growth, NBFC as a class has been a leader in this bull market and we continue to believe that the story is far from over. How will we come to know that NBFC bull market is over? When Reliance capital goes up 100-200% in 2-3 month period, that would be the end of the NBFC bull. In every bull market the horse leads from the start, but in the last phase of the bull market the pigs run the fastest. When the pigs start running, we will be cautious on the sector. 

Conclusion –  The big boys are backing it with Rakesh Jhunjhunwala in DHFL, Vijay Kedia in Canfin Homes and LIC Housing, Basant Maheshwari in Can Fin Homes and PNB Housing, Motilal Oswal has Invested 600 Crores in Aspire (affordable Housing Finance).

Incase your looking for the full Excel of housing finance data, feel Free to Mail us at info@stallionasset.com and we will provide you for free.


Disclosure– Amit Jeswani and Family have  Vested Interest in Housing Finance Companies. This is not a recommendation and use this for Education Purpose Only. Stallion Asset is a SEBI Registered Equity Advisory Company (INH000002582). The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision.


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