PNB Housing Finance Ltd.

IPO Note: PNB Housing Finance Ltd. Industry: Housing Finance Recommendation: Not Rated Date: October 20, 2016 Company Name PNB Housing Finance Ltd. Issue Opens October 25, 2016 to October 27, 2016 Price Band Rs. 750 to Rs. 775 Bid Lot The Offer Issue Size IPO Process Issue Snapshot 19 Equity Shares and in multiples thereof. Public issue of 38,733,871* Equity shares of Face value Rs. 10 each, (Comprising of Fresh Issue). Rs. 3000 Crore Face Value Rs. 10.00 Exchanges BRLM Registrar 100% Book Building NSE & BSE Kotak Mahindra Capital Company Limited, DSP Merrill Lynch Limited, JM Financial Institutional Securities Limited, J.P. Morgan India Private Limited and Morgan Stanley India Company Private Limited Link Intime India Private Limited Objects of the Offer Fresh Issue Augment the capital base to meet the future capital requirements; and General corporate purpose. In addition, the Company believes that the listing will enhance visibility and brand name among existing and potential customers. Issue Break up Issue Size Allocation Equity Shares* QIB 50% 19,229,839 HNI 15% 5,768,952 RII 35% 13,460,887 Total Public 100% 38,459,677 Employee 250000 Total 38,709,677 * Based on higher price band @ Rs. 775 Company Highlights PNB Housing Finance Ltd is the fifth largest HFC in India by loan portfolio as of September 30, 2015 with the second largest amount of public deposits in an HFC in India as of March 31, 2015. Incorporated in 1988, PNB Housing Finance Ltd, a subsidiary of Punjab National Bank offers housing loans to individuals and corporate bodies for the purchase, construction, extension or improvement of residential properties or for the purchase of residential plots, and nonhousing loans in the form of loans against property to property-owning customers through mortgages over their existing property and any additional security, if required. Company's target customers for housing loans are salaried customers, whose main source of income is salary from their employment, and self-employed customers, whose main source of income is their profession or their business. Visit chittorgarh.com for more detail. They also offer housing loans in the form of construction finance loans to real estate developers of residential housing. The company has Pan India presence in more than 40 locations through a network of 48 branches. Company s 16 hubs are located at New Delhi, Bengaluru, Chandigarh, Chennai, Noida, Jaipur, Dehradun, Lucknow, Kolkata, Cochin, Coimbatore, Mumbai, Pune, Ahmedabad, Indore and Hyderabad which support branch operations. The company provides doorstep service for its products via Direct Sales Team (DST) channel. Other than the DST channel, company s Home Loan and Loan against Property business is also sourced via Direct Marketing Associates (DMA) and Digital Medium. 1

View PNB Housing Finance has exhibited strong CAGR of 61.76% in its loan portfolio from Rs 39,696.63 million as of FY12 to Rs 271,772.68 million as of FY16. As of June 30, 2016, housing loans constituted 70.31% of the company s total loan portfolio and the rest is non-housing loans (primarily LAP). Retail housing loans constituted 86.52% of total housing loan portfolio and the average loan size (at origination) of retail housing loans was Rs 3.18 million. Of the non-housing loans, retail non-housing loans accounted for 78.27% with average loan size (at origination) at Rs 5.68 million. As of June 2016, salaried individuals account for 40% of the loan portfolio while self-employed individuals and corporate loans accounts for 44% and 16% respectively. The company has one of the lowest cost of borrowing owing to high reliance on NCD and deposits and less on bank loans. The same is possible on account of strong credit rating and access to cheap funds. However, that has also resulted in high leverage compared to peers. Nevertheless, it has resulted in maintaining strong NIMs of close to 3% mark for the last three financial years. For FY16 NIMs stand at 2.98% and with lower interest rate scenario, it has chances to improve. Geographic mix of the loan portfolio (as of June 2016) includes 40% north, 30% west and 30% south. Thus, the company has no exposure to East and can make endeavor to expand. On the asset quality front, the company is one of the best with GNPAs and NNPAs at 0.27% and 0.19% respectively and provision coverage ratio of 31% (as of June 2016). Pre issue ROAs and ROE of the company is 1.19% and 17.52% further post dilution ROAs and ROE of the company is expected to be at 1.1% and 7.2% respectively however with infusion of capital the ratios are expected to improve in the coming years. The company is also not present in the small ticket housing where the interest lies and also doesn t have much of focus in the rural areas. Nevertheless, the company is backed by a strong parent and has strong focus on the salaried and selfemployed urban people. With low cost of borrowings and access to cheap funds is expected to fuel growth as has been the case for last two years. On valuation front at higher price band, PNB Housing Finance is valued at P/BV multiple of 4.4x on pre issue BVPS and 2.45x on post issue BVPS. The company is into the growth phase and money raised through IPO will be used to strengthen the capital structure of the company. Given, healthy asset quality, strong credit growth, strong management and gradual penetration to new areas, the company can be considered as a long term investment bet. However post dilution ROA, ROE and high leverage ratio with its peers are near tem challenges in the short run. So we have Not Rated the IPO though we believe in longer term it could be a good wealth creator given the increased focus in housing segment. Income Statement (In Rs. Cr) FY12 FY13 FY14 FY15 FY16 Q1FY17 Revenue from Operations 461.0 666.3 1,120.3 1,780.4 2,699.5 863.4 Interest Expenses and Other Charges 314.4 462.0 801.6 1,264.8 1,860.3 608.0 Employee Benefit Expense 15.4 25.4 40.4 67.1 75.3 22.1 Office Operating Expenses 10.3 17.4 25.5 44.8 56.4 16.0 Other Expenses 8.8 19.4 40.1 62.8 107.1 37.5 Depreciation & Amortisation 0.2 1.0 3.3 8.3 15.0 4.5 Provision for Doubtful Debts 3.5 9.9 22.4 37.1 78.6 27.3 Bad Debts Written Off/Business Loss 2.8 2.6 8.0 1.0 2.6 0.7 TOTAL EXPENSES 355.4 537.6 941.3 1,485.9 2,195.3 716.1 PROFIT BEFORE TAX 105.6 128.7 179.0 294.5 504.3 147.4 Provision for Taxation 28.2 35.9 49.3 100.4 176.7 51.4 PROFIT AFTER TAX 77.4 92.8 129.7 194.1 327.6 96.0 Earnings Per Share 16.83 18.81 25.87 24.15 27.58 7.57 2

Balance Sheet (In Rs. Cr) FY12 FY13 FY14 FY15 FY16 Q1FY17 EQUITY AND LIABILITIES Shareholder's 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 Total Shareholder's Funds 399.9 618.0 934.1 1,578.7 2,144.5 2,240.5 Non-Current Liabilities Long-Term Borrowings 2,736.6 5,328.0 7,944.4 11,105.1 16,646.2 19,429.8 Deferred Tax Liabilities (Net) - - - 6.2 30.2 30.3 Other Long-Term Liabilities 40.1 76.1 141.9 262.7 101.8 136.1 Long-Term Provisions 17.8 29.4 48.7 81.6 160.9 184.2 Total Non-Current Liabilities 2,794.5 5,433.5 8,135.0 11,455.7 16,939.1 19,780.4 Current Liabilities Short-Term Borrowings 56.7 207.3 452.1 3,447.3 7,448.4 8,308.4 Short-Term Provisions 24.2 28.7 35.6 52.6 71.1 75.2 Trade Payables 3.2 6.6 21.6 56.7 74.8 92.5 Other Current Liabilities 1,157.8 1,360.9 1,961.2 2,444.3 2,994.6 4,184.7 Total Current Liabilities 1,241.9 1,603.5 2,470.5 6,000.8 10,588.9 12,660.7 TOTAL 4,436.3 7,655.1 11,539.6 19,035.2 29,672.5 34,681.6 ASSETS Non-Current Assets Fixed Assets Tangible Assets 4.6 14.1 24.9 38.3 48.2 50.7 Intangible Assets - 0.1 1.0 1.3 10.0 9.5 Capital Work-in-Progress 0.5 3.6 3.0 18.1 4.1 3.8 Non-Current Investments 53.6 58.1 118.7 219.1 814.0 894.4 Deferred Tax Assets (Net) 15.1 14.1 15.5 - - - Long-term Loans and Advances 3773.7 5387.9 8640.6 14382.2 25623.6 29139.7 Other Non-Current Assets 9.4 34.7 65.4 125.6 189.0 221.3 Total Non-Current Assets 3856.9 5512.5 8869.1 14784.6 26688.6 30319.5 Current Assets Current Investments 324.7 718.8 526.7 1366.9 808.3 195.6 Cash and Bank Balances 11.4 128.0 138.4 293.1 248.5 1975.5 Short-Term Loans and Advances 7.6 11.3 8.5 18.0 17.1 27.0 Other Current Assets 235.6 1284.4 1996.9 2572.7 1909.9 2164.2 Total Current Assets 579.3 2142.6 2670.5 4250.6 2983.9 4362.2 TOTAL 4436.3 7655.1 11539.6 19035.2 29672.5 34681.6 3

Performance (In Rs. Cr) FY14 FY15 FY16 Q1FY17 Operational and Financial Parameters Gross NPAs to total loan portfolio 0.32% 0.20% 0.22% 0.27% Provisioning Coverage Ratio 51.47% 66.82% 36.25% 30.77% Net NPAs to total loan portfolio 0.15% 0.07% 0.14% 0.19% CRAR 12.55% 13.29% 12.68% 13.04% Debt to equity ratio 10.96 10.61 12.2 13.41 Interest coverage Ratio 126.54% 126.95% 132.28% 129.58% Return on equity 16.71% 15.45% 17.60% 17.52% Return on average assets (after tax) 1.35% 1.27% 1.35% 1.19% Avg. shareholders equity as % avg. total assets 8.09% 8.22% 7.64% 6.81% Yields, Spreads and Margins Interest income 1,076.9 1,706.4 2,568.3 817.2 Finance cost 801.6 1,264.8 1,860.3 608.0 Average interest-earning assets 9,407.6 15,006.2 23,773.1 30,910.0 Average interest-bearing liabilities 8,499.9 13,496.0 21,455.2 28,102.4 Net interest income 275.3 441.6 708.0 209.2 Net interest margin 2.93% 2.94% 2.98% 2.71% Average total assets 9,597.3 15,287.4 24,353.9 32,177.1 Cost to income ratio 30.14% 31.39% 25.69% 25.03% Avg. interest-earning assets as % avg, total assets 98.02% 98.16% 97.62% 96.06% Avg. interest-bearing liabilities as % avg, total assets 88.57% 88.28% 88.10% 87.34% Avg. interest-earning assets as % avg. interest-bearing liabilities 110.68% 111.19% 110.80% 109.99% Average yield 11.45% 11.37% 10.80% 10.58% Average cost of borrowings 9.30% 9.26% 8.67% 8.65% Spread 2.15% 2.11% 2.13% 1.93% Dividend payout ratio 13.57% 14.95% 14.84% - Comparison with listed industry peers Co Name FV Net Sales (Rs. Cr.) EPS P/E P/BV RONW (%) ROA GNPA (%) NAV Market Cap (Rs. Cr.) PNB Housing Finance 10 2,700 27.6 39.2* 2.45* 17.6 1.1* 0.2 316.4* 12837* Housing Development Finance Corp 2 31,008 44.4 31.4 6.5 21.8 2.80 0.7 215.7 214123 Indiabulls Housing Finance 2 9,226 59.8 13.8 3.3 27.1 3.70 0.8 253.8 36406 LIC Housing Finance 2 12,503 33.1 17.5 3.2 19.5 1.44 0.5 182.6 30938 Gruh Finance 2 1,275 6.7 48.9 14.3 31.5 2.36 0.3 23.0 12642 Dewan Housing Finance 10 7,857 25.7 11.0 1.6 14.6 1.52 0.9 180.4 10137 Repco Home Finance 10 882 24.7 33.3 5.3 17.4 2.20 1.3 154.0 4839 * higher price band, # TTM P/E, P/BV, All data are of FY16 4

Name Designation Email ID Contact No. Paras Bothra VP Equity Research paras@ashikagroup.com +91 22 6611 1704 Krishna Kumar Agarwal Equity Research Analyst krishna.a@ashikagroup.com +91 33 4036 0646 Partha Mazumder Equity Research Analyst partha.m@ashikagroup.com +91 33 4036 0647 Arijit Malakar Equity Research Analyst amalakar@ashikagroup.com +91 33 4036 0644 Chanchal Bachhawat Equity Research Analyst chanchal.bachhawat @ashikagroup.com +91 22 6611 1712 Tirthankar Das Technical & Derivative Analyst tirthankar.d@ashikagroup.com +91 33 4036 0645 SEBI Registration No. INH000000206 Disclosure The Research Analysts and /or Ashika Stock Broking Limited do hereby certify that all the views expressed in this research report accurately reflect their views about the subject issuer(s) or securities. Moreover, they also certify the followings:- The Research Analyst or Ashika Stock Broking Limited or his/its Associates or his/its relative, has any financial interest in the subject company (ies) covered in this report. No The Research Analyst or Ashika Stock Broking Limited or his/its Associates or his/its relative, have actual/beneficial ownership of 1% or more in the subject company, at the end of the month immediately preceding the date of the publication of the research report. No The Research Analyst or Ashika Stock Broking Limited or his/its Associates or his/its relatives has any material conflict of interest at the time of publication of the research report. No The Research Analyst or Ashika Stock Broking Limited or his/its Associates have received any compensation or compensation for investment banking or merchant banking or brokerage services or for product other than for investment banking or merchant banking or brokerage services from the companies covered in this report in the past 12 months. No * The Research Analyst or Ashika Stock Broking Limited or his/its Associates have managed or co managed in the previous 12 months any private or public offering of securities for the company (ies) covered in this report. No The Research Analyst or Ashika Stock Broking Limited or his/its Associates have received any compensation or other benefits from the company (ies) covered in this report or any third party in connection with the Research Report. No The Research Analyst has served as an officer, director or employee of the company (ies) covered in the research report. No The Research Analyst or Ashika Stock Broking Limited has been engaged in Market making activity of the company (ies) covered in the research report. No * Ashika Stock Broking Limited is acting as a Sub-Syndicate Member for this IPO Disclaimer This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ashika Stock Broking Ltd. is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. Ashika Stock Broking Ltd. or any of its affiliates or employees shall not be in anyway responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Ashika Stock Broking Ltd., or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. 5