PNB Housing Finance jumps over 14% on rating upgrades; Morgan Stanley sees 35% upside

Shares of PNB Housing Finance soared over 14 percent on Monday, April 1, 2024, on the back of a bullish outlook and rating upgrades.

In a recent update, Morgan Stanley, a global brokerage firm, upgraded the stock to ‘overweight’ with a target price of ₹970. This target indicates a potential upside of nearly 35 percent from today’s high and a 54 percent upside from Thursday’s (March 28) closing.

This optimistic outlook follows upgrades by rating agencies ICRA and CARE, which upgraded the company’s long-term rating in light of improvements in its asset quality.

The stock jumped as much as 14.5 percent in intra-day deals to its day’s high of ₹720.40 on Monday. With today’s gains, the stock has now surged almost 79 percent from its 52-week low of ₹403.28, hit on March 21, 2023. However, it is still over 21 percent away from its 52-week high of ₹913.95, hit on January 25, 2024.

The stock has gained almost 48 percent in the last 1 year but lost around 8 percent in 2024 YTD, giving negative returns in 2 of the 4 months so far. It fell 9.3 percent in March and 11.5 percent in February. However, it was flat in January, up just half a percent.

Morgan Stanley emphasised in a recent note that housing finance companies traditionally experience robust performance in the fourth quarter, driven by increased loan growth and enhanced asset quality.

“The upgrade is also supported by the housing finance company’s strengthened capital position and diversified resource profile. The fourth quarter typically sees strong performance for housing finance companies due to loan growth and improved asset quality,” said the brokerage.

With valuation standing at 1x FY25 P/B and 9x P/E, PNB Housing appears attractive to investors, it added.

Meanwhile, CARE Ratings upgraded PNB Housing’s rating to ‘AA+’ from ‘AA’, accompanied by a ‘stable’ outlook, a change from the previous ‘positive’ outlook. This upgrade is attributed to the company’s improving asset quality and strong market position.

CARE said that the upgrade reflects its improving asset quality, with a GNPA ratio of 1.73 percent as of December 31, 2023, compared to 8 percent as of March 31, 2022. Additionally, the company’s robust market position as the third-largest housing finance company in India by loan assets as of December 31, 2023, and its well-diversified resource profile were cited as key factors in the ratings revision.

The upgraded ratings apply to various facilities and debt instruments, including long-term and short-term bank facilities, bonds, non-convertible bonds, tier-2 bonds, and fixed deposits.

Finally, the rating agency ICRA, as well, raised the debt instrument rating of PNB Housing Finance to ‘ICRA AA+ (Stable)’ from ‘ICRA AA (Positive)’. Similar to CARE’s upgrade, this was also attributed to the company’s consistent enhancement in its credit profile, propelled by improvements in asset quality metrics and a reinforced capitalisation profile.

In light of the fierce competition in the mortgage finance sector, ICRA emphasised the significance of PNB Housing’s ability to sustain its net interest margin, enhance operational efficiency, and manage credit costs effectively from a credit standpoint.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.