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PNB Housing: Efforts to shore up liquidity weigh on disbursements, margins

Shreepad S Aute/ 07 Nov 18 | 05:48 PM

With the ongoing liquidity issue in the non-banking financial company (NBFC) space, the street is mainly looking at how this metric pans out for such non-bank lenders. PNB Housing’s September 2018 quarter (Q2) numbers, announced on Monday, showed that the company compromised on growth to shore up liquidity.

As a result, it missed street expectations in Q2 with reported net profit growing by 33 per cent to Rs 2.5 billion. Analysts were anticipating a profit figure of Rs 2.7 billion.

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Apart from the slowdown in primary market, PNB Housing’s efforts to ramp up liquidity to Rs 42 billion as of September 2018 from Rs 30 billion at the end of June, brought down the growth in loan disbursements to 14 per cent year-on-year, from 25 per cent in June 2018 quarter.

However, improvement in repayments has pushed up overall assets under management 43 per cent year-on-year to Rs 734.8 billion.

The moderation in disbursement growth and the company's move to raise liquidity levels also impacted its profitability. Net interest margin or NIMs of PNB Housing contracted by 29 basis points to 2.72 per cent in Q2.

The higher liquidity, however would take care of Rs 9 billion any shortfall in terms of asset-liability management (liabilities maturing in one year are more than assets) in near term.


“Though liquidity is not a major disruption for PNB Housing in the near term, tightening of liquidity will slow down the growth significantly and will have immense pressure on NIM due to higher cost of funds," says Deepak Kumar, analyst at Narnolia Financial Advisors, who is neutral on the stock.


Positively, the increase in the low-cost deposit base should help PNB Housing reduce some pressure arising due to high cost of funds. In Q2, its deposit application count increased 40 per cent from June 2018 levels.


Secondly, asset quality remains strong with gross non-performing assets (NPAs) or bad loans as a percentage of gross advances standing at just 0.45 per cent as of September 2018, almost flat at June 2018 level. That said, its nearly Rs 3 billion exposure to Supertech, a developer under stress, as well its fast-growing loan against properties book, needs to be watched.


Overall, given the near-term concern on profitability amid high funding costs and slowing growth, investors are recommended to wait till the liquidity issues for the sector stabilises as many analysts now have cut down their earnings estimates for many NBFCs including housing finance companies. 

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