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Should You Subscribe To The PNB Housing IPO?
The PNB Housing Finance IPO looks overpriced at the offer price and there maybe no listing gains.
PNB Housing Finance is slated to come-out with a public issue of shares on Oct 25, 2016. The shares of the company are to be issued in a price band of Rs 770 to Rs 775 per share. The face value of the shares is Rs 10 and the minimum quantity that can be applied is 19 shares. We tell you now, if you should subscribe to the shares of PNB Housing Finance.
Great industry
Housing finance industry is one of the fastest growing industries in the country. Some estimates have placed the growth of the industry at 18 per cent. However, it is highly possible that the industry is growing at an even faster rate. This is because, India has an under penetrated housing market. With people moving to the city and the demand for housing surging, we believe that the housing sector, will continue to benefit immensely in the years to come. We believe there will be no problem for PNB Housing on this count.
Strong pedigree, well networked
PNB Housing Finance is well networked and among the top housing finance companies in the country. It has a solid network of 47 branches and several processing centres in India. Punjab National Bank owns a 51 per cent stake in the company. Renowned Equity investor, Carlyle also owns a major stake in the housing finance company. In terms of loan portfolio, PNB Housing Finance is the 5th largest housing finance company in the country.
Low level of non performing assets
One of the biggest issues with banks and NBFCs or housing finance companies is the level of non performing assets. However, housing finance companies are better placed in terms of those things. PNB Housing Finance has a gross non performing assets of just 0.22 per cent, of the loan book. In all probability, this should be the lowest among all housing finance companies in the country.
Solid financial performance
PNB Housing Finance has had a solid financial performance in the last few years. In fact, the net profits jumped to Rs 327.5 crores, from Rs 194 crores in 2015. That was an extremely sharp jump on the back of solid growth. The return on networth at the company also rallied sharply and was in excess of 17 per cent.
Fundamentals
There is no doubt that PNB Housing Finance has seen its net profits jump in the last few years. In fact, the company has seen a very stupendous growth in the last few years. Revenues have surged to almost Rs 2,700 crores for the period ending. However, we believe that the stock is very expensively priced at the current levels. The company reported an EPS of Rs 27.60 for FY 2016-17, which takes the p/e to just about 28 times. This is extremely high, when compared to housing sector peers like HDFC, Dewan Housing or Indiabulls, which trade at a p/e of around 12-13 times.
Unlikely to be listing gains
It is extremely difficult to get listing gains from the IPO. In fact, most brokerages, have indicated that the IPO is pretty much expensive. So, we suggest that you skip this IPO and wait for listing, as you may get the share price lower.
