IPO Product te October 21, 2016 PNB Housing SECTOR Housing Finance Issue Highlights About the Company Issue Open Oct 25, 2016 Issue Close Oct 27, 2016 Issue Price Rs.750 - Rs.775 per share Total Issue Size Rs.2,903-3,000 Cr Total Issue Size 38,709,677 shares Of which Offer for sale Nil Face Value Rs. 10/share Market Lot 19 Equity Shares Issue Type Book Built Issue Offer Structure QIB Category 50% n-institutional 15% Retail category 35% PNB Housing (PNBHFL) is the fifth largest Housing Finance Company (HFC) in India by loan portfolio (Rs 30,900cr - June 2016) after HDFC, LIC Housing, IndiaBulls Housing and Dewan Housing and is the second largest HFC in terms of deposits. Parent & Promoter, Punjab National Bank (PNB), holds 51% in the company (~39% post IPO). The remaining 49% is owned by PE firm Carlyle(~37% post IPO). PNBHFL has a wide product offering with ~70% of the loan portfolio as housing loans with an average ticket size of Rs 32lacs. It offers secured, mortgage-backed retail housing loans to salaried customers and self-employed customers, for the purchase, construction, extension or improvement of residential house properties or the purchase of residential plots. In addition, it offers construction finance loans directly to real estate developers for residential housing projects. It also offers non-housing loans, such as LAP, NRPL, LRD, and CTL generally to customers who already own a property. As of June 2016, LAP constituted 60% of non-housing loan portfolio and 18% of total loan portfolio. PNBHFL s loan portfolio has grown at CAGR of 62% over FY12-FY16. Its footprint includes a network of 47 branches and 16 processing hubs including a Central Support Office (CSO). Apart from its own network, the company s distribution network includes over 7,100 channel partners across different locations in India. Lead Book Running Managers Kotak Investment Banking BOFA Merill Lynch JM Financial JP Morgan Morgan Stanley Registrar To The Offer Link Intime India Private Limited Siji A Philip siji.philip@religare.com +91-22 - 67288018 Objects of the Issue Augment capital base to meet future capital requirements. General corporate purpose. Valuation PNBHFL is ranked among the top 5 HFCs in the country and has maintained high growth of ~62% in the last four years with stable asset quality. Its loan portfolio comprises of ~70% of individual housing loans, which is the least risky. Its asset quality (FY16) is the best among housing finance companies with GNPAs at 0.22%, lower than DHFL (0.9%) and HDFC (0.7%). In the price band of Rs 750-775, company is valued at ~2.4x FY16BV (post IPO) which is slightly stretched visa-a-vis DHFL (~1.8x) but it is still cheaper than Can Fin (~6x) and HDFC (~4x). PNBHFL s foray into affordable housing targeting Tier II/Tier III cities, growth prospects, steady asset quality and strong ROE (18%) will support its valuations over the next couple of years.
Strengths Fifth largest HFC in India and the fastest growing HFC among the leading HFCs in India : PNBHFL with over 25 years of experience in the Indian housing finance industry, is the fifth largest HFC in India by loan portfolio and is the second largest by deposits in an HFC. It is also amongst the fastest growing HFCs with ~62% CAGR in loan portfolio over FY12-FY16. As of June 2016, loan portfolio stood at Rs 30,900cr. The robust growth in loan portfolio reflects the rapid growth in the housing finance industry, combined with market share gain by PNBHFL. As company expands operations, the strong market position, combined with growing size and scale, and national presence will aid in exploring the significant growth potential in the Indian housing finance industry. Strong distribution network with deep penetration of key Indian urban centres : As of June 2016, PNBHFL had 47 branches that were supported by 16 processing hubs, three co-located zonal offices and CSO in New Delhi. To date, company has successfully expanded the business in the western and southern regions in India from being focused only in the north. As of June 2016, 39.67% of loan portfolio originated in states within the northern region whereas 30.40% and 29.93% of loan portfolio originated in states within the western and the southern regions in India, respectively. Scalable operating model and centralised and streamlined operational structure : The current operating model (Hub & Spoke) is scalable, which will enable PNBHFL to expand with lower incremental costs to drive profitability. The company s processing hubs are generally designed to support additional branches, which will enable deepening penetration of key geographies in which it is currently active by opening new branches and leveraging the investment made in existing processing hubs. A streamlined operational structure has resulted in improved turn-around-time (TAT) for processing a loan application until loan sanction. TAT for loans to salaried customers is just three days and for self-employed customers it is just seven days. Access to diversified and cost-effective funding sources : PNBHFL has met funding requirements through a diverse set of sources which included term loans from banks and financial institutions, NCDs, deposits, ECBs, commercial paper, refinancing from NHB and unsecured, subordinated debt. PNBHFL had also securitised Rs 500cr in FY15 and Rs 2,440cr in August 2016. Diversification of sources of funding in recent times has contributed to an overall reduction in average cost of borrowings (8.7% in June 2016 from 9.3% in 2014). Support from Parent and Promoter : Support received from PNB in the past has helped in obtaining high credit ratings and raising capital. Furthermore, ability to use the PNB brand brings reliability during customer interaction and positioning of products in the highly competitive housing finance industry. IPO te
Strategy Consolidate company s position and selectively expand into specific target geographies and markets : PNBHFL currently plans to expand distribution network in new locations and engage additional external service providers, if required, in locations the company believes that sufficient potential for growth exists based on factors such as target income groups, demographics, average loan size and the development of real estate markets. It expects that a significant portion of geographic expansion will include tier II and tier III cities in the southern and western regions of India. Continue to reduce PNBHFL s cost of borrowings and raise deposits: PNBHFL has reduced average cost of borrowings from 9.30% in FY14 to 8.67% in FY16 and 8.65% in June 2016 through the use of funding sources such as NCDs, ECBs, refinance from the NHB and commercial paper. Company plans to continue to meet requirements for diverse and cost-effective funding sources by continuing to rely on borrowings from these less costly sources and by reducing dependence on more costly term loans from banks and financial institutions. In addition, deposits which are relatively stable source of funds have grown 110% CAGR over FY12-FY16. Its strategy is to continue to raise deposits, which can be achieved through introducing new deposit products, expanding the distribution network and adding more deposit brokers. Continue to maintain the credit quality of loan portfolio : Despite the high loan growth of ~62% CAGR over FY12-FY16, PNBHFL has maintained its asset quality at healthy levels. The success of business will increasingly depend on maintaining and streamlining consistent underwriting standards to reduce credit risks and implement strict risk management standards, especially as loan portfolio matures and as operations expand into newer geographies. GNPAs are the lowest among the leading HFCs in India (0.27% as of June 2016). PCR stood at 31.77%. Continue to enhance customer delivery by leveraging digital media and continue to develop and strengthen technology platforms : The target customer base is increasingly relying on online platforms to manage their finances and many of the existing customers prefer to engage directly through an online interface. In order to meet the needs of new customers, company is in the process of increasing its ability to target potential customers through social media. In addition, company intends to strengthen existing customer portal for easy access of all important loan information and to have a dedicated customer service centre to improve TAT for post-sales services. IPO te
Risks Volatility in interest rates Increase in NPAs on non-payment by customers in particular, self-employed customers As loan portfolio grows, an increasing proportion of loans could be classified as NPAs and the current level of provisions may not adequately cover such increases Indian housing finance industry is highly competitive and increased competition may lead to a relative decline in average yields and spreads IPO te
Financial Performance Balance Sheet Standalone (Rs Crs) Particulars (Rs cr) FY12 FY13 FY14 FY15 FY16 1QFY17 SOURCES OF FUNDS Share capital 30.0 50.0 65.7 103.8 126.9 126.9 Reserves and surplus 369.9 568.0 868.4 1,474.9 2,017.5 2,113.6 Shareholders' funds 399.9 618.0 934.1 1,578.7 2,144.5 2,240.5 Total Borrowings 2,793.3 5,535.4 8,396.5 14,552.4 24,094.6 27,738.2 Other Liabilities, provisions 2,042.9 2,737.8 4,077.3 6,061.6 7,722.3 9,183.9 Total Liabilities 4,436.3 7,655.1 11,539.6 19,035.2 29,672.5 34,681.6 APPLICATION OF FUNDS Advances 3,781.3 5,399.3 8,649.1 14,400.2 25,640.7 29,166.7 Investments 378.3 776.9 645.5 1,586.0 1,622.3 1,089.9 Fixed assets 5.1 17.7 28.8 57.7 62.2 64.0 Other Assets 271.5 1,461.2 2,216.2 2,991.4 2,347.4 4,361.0 Total assets 4,436.3 7,655.1 11,539.6 19,035.2 29,672.5 34,681.6 Source: Company Data, RHP Profit & Loss Account - Standalone (Rs Crs) Particulars (Rs cr) FY12 FY13 FY14 FY15 FY16 1QFY17 Revenue from operations 461.0 666.3 1120.3 1780.4 2699.5 863.4 Less: Interest expense 314.4 462.0 801.6 1264.8 1860.3 608.0 Net Interest Income 146.6 204.4 318.7 515.5 839.3 255.4 Expenditure 34.7 63.1 109.3 183.0 253.9 80.1 Employee expenses 15.4 25.4 40.4 67.1 75.3 22.1 Other expenses 19.1 36.7 65.6 107.6 163.5 53.5 Depreciation 0.2 1.0 3.3 8.3 15.0 4.5 PPOP 111.9 141.2 209.4 332.6 585.4 175.4 Provisions 6.3 12.5 30.4 38.1 81.1 28.0 PBT 105.6 128.7 179.0 294.5 504.3 147.4 Tax 28.2 35.9 52.1 100.4 176.7 51.4 PAT 77.4 92.8 126.9 194.1 327.6 96.0 Source: Company Data, RHP IPO te
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