IPO ANALYSIS: PNB HOUSING FINANCE LIMITED : EXPENSIVE - AVOID

ISSUE DETAILS:

ISSUE OPENS / CLOSES ON	25-10 /27-10-2016
ISSUE SIZE	RS 3000 CR
FACE VALUE	RS 10
PRICE BAND	RS 750-775
LISTINGS	BSE, NSE
BRLMs	KOTAK, DSP MERRILL LYNCH, JM FINANCIAL,JP MORGAN AND MORGAN STANLEY
REGISTRAR	LINK INTIME

BUSINESS

Promoted by Punjab National Bank, PNB Housing Finance 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.  PNB offers housing loans for the purchase, construction, extension or improvement of residential properties or for the purchase of residential plots, and “non-housing loans” in the form of loans against property  to property-owning customers through mortgages over their existing property.

The non-residential premises loans  for the purchase or construction of non-residential premises; lease rental discounting  loans offered against rental receipts derived from lease contracts with commercial tenants; and corporate term loans.

The target customers for our housing loans are salaried customers, whose main source of income is salary  and self-employed customers, whose main source of income is their profession or their business. PNB also offer housing loans in the form of construction finance loans to real estate developers of residential housing. As of March 31, 2016, the housing loans constituted 70.34% of our total loan portfolio and the retail housing loans constituted 87.10% of the total housing loan portfolio. The average loan size is around Rs 56 lacs.

VALUATION AND RECOMMENDATIONS

The company reported an average EPS of Rs 26 in the last 3 years. Assuming PNB Housing will report an EPS of Rs 27/28 for FY 17, the offer is made around 28 PE, which is expensive.

The IPO is very aggressively priced. The IPO should not have been priced beyond Rs 500.

AVOID THE IPO.