PNB Housing Finance Limited analyst Q&A

Hi sir, congrats on a great set of numbers. Just two things, one on this Affordable yield size. We have seen a pretty sharp fall on sequential basis to 40 basis point. Is this due to some seasonality or sort of how one should read this drop in yield on a sequential basis?

In the coming yearwe will increase yields. So in Quarter 4, we had focused more on volume and also with this PMAY ISS coming into picture so because of these two reasons, yields are slightly lower. And I would say in a sense this is seasonal and from quarter 1 it will pick up sir. Our idea is to take a yield to about 12.65% in FY'26.

Okay, I mean, so is it fair to assume that let's say anything about Rs. 1,000 odd crores yields will be very competitive to achieve that volumes or I mean just wanted to get a sense how one should read this data point in terms of Rs. 1,200 crores of disbursement and a 40-basis point of yield curve.

If you look at any Quarter 4 of the year it will be slightly seasonal because of too much of focus on everyone trying to build up volume. So, in that sense it is seasonal otherwise we are very clearly focused on increasing yield. So, our plan is to take yield to about 12.65% in Affordable.

And last question from my side on the disbursement momentum. So just wanted to have the share. I mean what would be the share from BT-in of Q4 disbursement and how much it would be from let's say core volume increase.

So, for us I think on, we are into three different businesses so let me try to address this business wise. If we look at Prime, I think the BT -in and GT out is almost similar , on Emerging space, the BT yield is slightly more about 50% more than the BT-out and in Affordable, I think largely it is BT-in, BT-out is negligible.

Okay. Any numbers you want to put it.

So overall out of 17%, now what we talk about no closure. BT-out would be about 5.5% to 6%.

5.5% to 6% BT-in on a net basis?

BT-out.

Okay. And BT-in?

BT-in would be about 8%.

At overall basis, right?

Okay. That's it for my side.

Thank you. Next question is from the line of Viral. Please go ahead. The line for the participant dropped. We move on to the next question. Next question is from line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Good evening, everyone. Thank you for taking my question. Sir, first things first. Just trying to understand, while you said that BT -in was 8% at the overall level, if you could also share the number in the Affordable book, what proportion of the disbursements in Q4 and full year FY25 came from BT-in the Affordable book?

So, on book I said it is 8% is BT-in and BT-out to 6%. So, we get net close to about 2%. So , talking about business specifically Affordable BT-in is about 12%.

BT is 12%. This was for 4Q disbursements.

Yes.

Okay. And for year FY25?

No, I was talking about…See, if we talk about overall Affordable, the BT-in is about 21%-22% and in Affordable, what BT-out is hardly about 1%-2%. If you take Prime, it's about 20% and Emerging also will be on similar line. The only thing is in Prime, the BT-in is equal to BT-out. So, we don't get anything on BT. On Emerging, we gain about 3%. On Affordable, largely it is BT-in, BT-out is very low. So overall on the book, what we lose is about close to 6% on BT-out and BT-in is ~8% on the book

Got it. This is clear. So, the second thing I wanted to understand is , how should we look at margins in FY26? The reason I ask is, when we look at large HFCs like you in a declining rate environment, they speak about a transitory NIM compression. In our case because we are also matching it up with the product mix change in f avor of Emerging and Affordable. How are we kind of looking at NIMs evolving over the next couple of quarters as well as this full year FY26?

NIMs should be stable. When I say stable, if I have to give you a range, it will be between 3.6 to 3.65. The reason for that is very clear , even in spite of cuts in policy rates because of mix change and also because of corporate business and cost would slightly go down because we are expecting maybe fag end of this year, maybe a rating upgrade. Because of these reasons our cost would go down, because of mix change yields would go up, because of corporate restart, it will on the yield and margin and therefore margin will be stable.

Right.

Got it. And so, I mean just trying to understand this better. Maybe three-four quarters back you had suggested that this provision write backs will continue this year , for almost whole of this year we saw those provision write backs continuing . Earlier in the call during your opening remarks you spoke about a Rs. 1,000 crores corporate write-off pool, Rs. 400 crores of retail write-off pool. Now are we looking for another maybe three-four quarters of these provision writebacks continue?

Yes. Whole of FY26 will be write back and credit cost will be negative.

Got it. This is useful. Thank you so much and sir, congratulations again on a very strong quarter. Wish you the very best.

Thank you. Next question is from Nishant Shah from MLP. Please go ahead.

Hi sir, congrats for the good set of numbers. So just elaborating on the previous question on the headwinds from the repo rate cuts. So, fair play we have some levers from product mix change but do you see some headwinds to just growth itself because while yes , there'll be margin compression or yield compression on incremental book, does that kind of also result in lower growth? Because you're seeing some of your large HFCs also start to cut rates in line with the repo rate cuts of the large b anks. So should we think about you know growth probably in the Prime segments or in the corporate segments tapering down a bit and probably Affordable, trying to pick up the slack. How should we think about that?

I think two things. If you look at our strategy , our strategy has been to grow the Prime book slower, Emerging faster and much faster Affordable book. So, with the rate going down demand will further go up. So, which means volumes will increase. Now for us, cut in policy rate would not impact us for two reasons. One, our focus is on margins. So, when the rate goes down, we would fine tune the yield in such a way that the margin is protected. Adding to this, the product mix change and also corporate. So, this would aid us to maintain margin. This should further propel demand and therefore the growth. But our focus is very clear. Our focus is on all the three. But Prime will grow at a slower pace, Affordable and Emerging at a faster pace.

Okay, fair enough. So, what should we think of the blended company growth to kind of come in at for this year?

So, we have guided retail growth of about 18% , retail book growth 18% and corporate we plan to do about Rs. 1,500 to 2,000 crores.

In fact, FY25, there were a lot of challenges which I've spoken in my previous earning calls. In spite of all the challenges we had guided for 17% retail growth. We end up with 18.2% retail growth. FY26 is going to be far better than FY25 for the industry.

So just to double click on that point, FY26 we still had broadly rate discipline being maintained by a lot of the large banks. But now it's like when there's like say a 100 bps rate cut cycle, it's compulsory. Everything will have to compulsorily kind of flow through. Does that kind of create. So, I'm just trying to understand how is the environment in FY26 easier than in FY25 when FY26 is the one which is going to see the brunt of the rate cuts.

See in FY26 definitely there'll be cut in policy rates, and it could be 50, it could be 75, it could be 100 bps, it could be anywhere between 50 to 100 bps. Now this would definitely have an impact because of the lag effect . Now we have baked this into our business plan and basis that we are saying that we'll be able to protect the margin. So on one side this would impact the margin because of the lag because everyone, including PNB Housing, we have our own PLR that is broadly linked the general interest rate scenario in the market. So, whenever policy rate goes down, sooner or later, when our cost goes down, we pass on that benefit to our customers. However, there'll be a bit of lag, to offset that we have plan in place in terms of mix change and corporate.

Okay, fair enough. I will Take more questions offline. This is very useful. Thank you.

Thank you.

Thank you. Next question is from the line of Viral Shah from IIFL Capital. Please go ahead.

Hi. Thank you, sir. So, total three questions. One is you mentioned on the possibility of a rating upgrade towards the end of the year. Can you tell us like what gives you that confidence? Have you interacted with the credit rating agencies? I'm asking this in the context that of course there is also the October 4th circular of RBI. If it comes through then maybe potentially PNB may have to reduce the stake to 20% odd levels. Of course there is probably could be a glide path. Again, not sure whether even that circular is coming or not. But given that uncertainty, what gives us that confidence and more so the rating agencies. That's one.

See we got the last upgrade in Quarter 4 of last year and Quarter 1 of FY25. So, generally there is a cooling period and if you see the comp any’s performance in last five quarters , this quarter included, I think all the performance metrics have improved. And we are sure that this performance will continue for the next two quarters. So, basis this, we feel that there will be a rating upgrade. Commenting on Para-IV, I think it's too early because even the circular is not rolled out yet. So, I t hink that is too premature to discuss on that. I think looking at a short to medium term view, I think very clearly, we have a handle on our yield and margins and we expect that end of this financial year we should get an upgrade on the rating.

Okay sir, so second question is with regards to I would say the management kind of continuity beyond when the PE presence kind of goes away. More so from the perspective, again from a longer-term perspective, how does governance and all those things kind of play out in that scenario?

See PNB Housing is a professionally managed organization so management is quite strong. We have a very strong bench and today if you look at PNB is a promoter, they hold about 28%. The next highest is by a private equity p layer which is about little over 10%. So, I don't think so anything would change at all.

No sir, but like once if the PE goes away then basically what's the view of the parent because how do they then want to run on it? Just if you can comment.

No, we have no view on that. I think as of now we are focused on operational things of the company and in last few quarters, the stake has been changing, and we have seen that, we witnessed that but nothing really has changed the performance of the company. So, it will continue.

Got it, sir. Sir, and last is on the PLR rates. So you haven't taken any PLR rate cut as yet for the total 50 bps cut that has already come?

Not as yet, yes.

Do you have any plans and if at all, over what period you may want to consider that. I know it's an ALCO decision but just some thoughts if at all.

We keep reviewing, I think whenever it is the right time then we will take a call.

Okay, sir, fair enough. Thank you so much and all the best.

Thank you.

Thank you. Next question is from the line of Ab has Verma from East Green Advisors. Please go ahead.

Good evening, sir. Thank you for the opportunity. I had two quick questions. My first question is going forward, what steady state mix between salaried and self -employed customers do you see on the loan portfolio? Any broad guidance would be helpful. So that's my first question.

At a disbursement level again, we have three different businesses. So, if you have to talk about Prime it will be 65 :35 in Emerging would be 60 and 40 and Affordable 50:60. This is at the origination stage, disbursement stage. At a portfolio level it will take a lot of time because today the mix is about 70 and 30. It will take time for the mix to stay at a portfolio level.

Okay. Thank you so much. And my second question is for the corporate loan book that we build from here on , what will be the average ticket size and the yields on that if you could help on that?

Average ticket size should be in the range of Rs. 175 to 200 crores. So, we started off the last financial year with a small sanction. We will continue and this year we plan to di sburse about Rs. 1,500 crores to 2,000 crores.

Okay. And about the yields, is it like what sort of yields are you expecting on the…?

Yield should be about 12%.

Okay. Thank you so much. That's it from my side.

Thank you. Next question is from the line of Siraj Khan from Ascent Capital Partners Please go ahead.

A couple of clarification before I ask my question for Affordable book, in the opening remarks you have said Rs. 9,500 crores is the target for FY26, is that correct?

That's right.

Okay. And so that would imply we would want to , so in for FY25 we did approximately Rs. 3,400 crores of disbursements. And that would mean we do have to do somewhere in the region of more than Rs. 5,000 crores considering the BT and etc., so would that be a fair assumption?

No, in Affordable BT-out is hardly anything as I mentioned. So as of March, ‘25 the book is about Rs. 5,070 crores. So, we plan to take it to Rs. 9.500. So, disbursement should be about close to Rs. 5,000 crores, you're right.

Okay. And the data keeping question and then I will come to the main question. So, in the past quarters were showing also in the slide, the sanctions that we did in the quarter. So, what are the Q4 sanction? Just to identify the sanction to disbursement ratio for the quarter.

Generally, the ratio between disbursement to sanction is about 66%-67%. So, we have disbursed little over Rs. 1,200 crores in Quarter 4.

So, the sanction rate is somewhere in the range of 66% for Q4.

Yes, about there, Rs. 1,600 to 1,700 crores.

Okay, great. And so now my question comes with respect to the branch expansion. So, in the last quarter we added a significant number of branches to reach 200 branches for the year. What is the number that we plot for FY25 and how will be distributed? Will it be again like this year rear ended maybe towards H2 or will it be spread out? That is first.

So, we are at now 356 branches as of March ‘25. The plan is to take to 500 by March ‘27. So Affordable, which is now 200 we will take it to about 300 branches and the rest would be largely in Emerging. So, all the branch expansion would happen in Affordable and Emerging. So close to 150 branches will open in next 2 years, t hat is FY26 and ‘27. That would largely be in Affordable and Emerging.

So, would that be for Affordable specifically, would that be 50-50 in each year or will it be more in the next year?

It will be almost 80% in Affordable and the balance 20% in Emerging.

Understood. And sir, with respect to the pricing, now I think many of the previous participants asked on this and my question is slightly different from the yields. So with the yields, average yield for the whole book in specifically the Affordable was approximately 12%, eleven point something percent on an average basis. So as and when the yields do come down, with the rate cuts, how do you think that it will sustain? Will it go above 12% and or will it be somewhere in the region of 11%-11.5%?

It will go over 12% because if you remember our earlier yield , the target was 13%. So with the policy cut, we are now revised up to about 12.65 %. So our yields will go up to 12.65 %. So we have taken that into account.

Then basis that the overall book yield would then , I think go somewhere north of 10 %-10.5%, the incremental yield I am talking about?

Yes, b ecause Emerging the yield, what you are targeting is 10.25. Let me talk about FY26 because we really do not know to what extent there will be swing in policy rates, right , and therefore, let us talk about FY ’26. FY ‘26 is the target for Affordable list to take the yield to 12.65%, Emerging is 10.25% and Prime will be about 9.5%-9.6%. So if you take disbursement blended yield, it should be in excess of about 10%-10.2%.

Understood. Thank you. I will join back in the queue for more questions.

Thank you. Next question is from the line of Abhishek Jain from AlfAccurate Advisors. Please go ahead.

Thanks for the opportunity and congrats for a strong set of numbers. Sir, my first question on the change in the business mix, in this year, we have done around 26% from Emerging and Affordable housing. So how do you see the change in the business mix in FY ‘26 and ‘27 and how much improvement is possible in the ROA and ROE front?

So on a long -term basis, we have guided that this mix should touch by 40% by FY ‘27. Right now, we are at 26%, next year should be around 32%-34% and then it will reach to 40%.

And at that point, what would be the ROE? In this quarter , w e have seen a very good improvement on the ROE, what is your medium-term target for ROE?

See, right now, ROE or ROA has upside on account of recoveries from return of pool, which is to the extent of around 40 basis points, so excluding that we are at maybe 2.2-2.5. So by FY ‘27 on a steady state, we want to reach to around 2.5-2.6 without the support of the recovery.

And my last question on the outlook for the Affordable housing industry. What are the key levers of the growth in FY ‘26 and how do you see competition over there?

For Affordable, especially now there is a lot of focus from government as well. PMAY 2.0 Interest Subsidy Scheme, there is a lot of demand for that Interest Subsidy Scheme and even otherwise from EWS and LIG and part of MIG, there a lot of demand. So Affordable industry should do well, the growth should be much higher compared to Emerging and Prime. And since our focus is more on Affordable that is the reason we are planning to take a book from the flow of Rs. 5,000 crores to about Rs. 9,500, which is almost about 80%-90% growth in book.

In the next 2 years?

No, by March 26th Affordable booked to Rs. 9,500 crores. By March 27, our Affordable books will be Rs. 15,000 crores. So March 27 , I reiterate , our retail loan book is going to be Rs. 1,00,000 crore. Out of Rs. 1,00,000 crore, Affordable will be Rs. 15,000 crores, Emerging will be Rs. 25,000 crores and the balance Rs. 60,000 crore will be a Prime book.

Thanks, sir. That is all from my side.

Thank you.

Thank you. A request to all the participants . Kindly restrict to 2 questions per participant and join the queue again for a follow up question. Next question is from l ine of Aditi Nawal from RSPN Ventures. Please go ahead.

Thanks for taking my question. I just have one question in the Affordable segment. So the bounce rates sequentially over the last few quarters have been inching up. So what is the bounce rate that we are comfortable with in this particular segment?

So I think if you look at the industry , bounce rate in the range of 15 %-16%. We are at about 11%, 10.5%-11%. So I think this portfolio, we are very comfortable as long as it is under 15%. But today it is 11 %. We will take a lot of time because we also have built a book largely from low risk and medium risk. So as we increase our business segments, we will be in line with the market. Today, we are much below market in terms of bounce rate. I think we will take another 18 months. I think we will get close to that, but we will be very comfortable as long as it is below 15.

Understood. Thank you so much.

Thank you. Next question is from the line of Harsh Shah from Reera Holdings. Please go ahead.

Yes. Hi. Good evening, sir. Sir, my question is on the credit cost. So this year , we had around Rs. 160 crores of negative credit cost because of the recoveries and next year also , you are guiding that recovery could be higher than the credit cost. So my question is, this year we had almost 35 bps flow through to the ROA because of savings in the credit cost. But if I look at FY ‘27, we might end up at our usual 20 -25 bps kind of credit cost, so that means it would be a negative delta of almost 50 -60 bps in couple of years. Sir, my question is how will we recover that 50-60 bps of negative impact that our ROA will have from the credit cost? So currently, we are at 2.75 ROA which could go down to maybe 2.25-2.35 of this negative credit cost turning to credit cost expense?

So if you look at our recovery pool, I think whole of FY’26, the credit cost is going to be negative because of the recovery , right. In FY‘27, we will not get that much support because we won't have really pool available. In the meanwhile, we would have built our corporate book. We would have increased our share of Affordable and Emerging a nd also parallel ly, we are trying to increase yield in all the three segments , I think barring quarter 4, right. So today the NIM is about 3.6-3.7. By FY’27, NIM will go to 4.0-4.1. So with that standalone, the credit cost is going to be about 25 bps and ROA will be 2.5-2.6.

That is what I wanted to hear. So you are working towards getting that NIM to above 4%-4.1% kind of a number?

Yes.

Alright, sir. Thank you so much. Thank you.

Thank you. Next question is from the line of Siraj Khan from Ascent Capital Partners. Please go ahead.

Thank you very much for the follow up. With respect to the pricing strategy and again this is kind of related to both the Emerging and Affordable segments. Again, the Affordable segments have dropped in the yields for Q4 because of seasonality and competition across the board in the other HFCs, and even your Affordable HFC, we have seen the incremental yields dropping. So although you are saying that the yields will be above 12%, but my question was, would it be in our benefits to not go too muc h ahead and stay like a cost leader? Are we doing this by design or is it happening by default that kind of we are getting the benefits of being like a low cost leader in the space with respect to the yields?

So I think we are very clear in our strategy. See , if we look at Affordable business, there are three segments, low risk, medium risk and high risk. So the strategy for us is going to be focused on 20% from high risk, 60% from medium risk, 20% from low risk. So this would give us a yield of about 12.65%. So we would neither be at the bottom in terms of pricing nor at the top . We will be somewhere in between, and our yield is going to be 12.65. So that is the strategy.

Understood. So I was just wanting to understand whether this was by design or something and any specific buckets of ticket size, say for example, I can see from the presentation that less than 35 lac ticket size is the predominant one. But even in the specific sub segments or with respect to the 10-15 or 15-25, any specific band of ticket size that you see is showing good growth in the specific sub segments of this ticket size? And secondly, any specific geography that you are seeing any early times of you can say with respect to asset quality troubles or any specific region, even with the ticket size and the geography?

So in terms of average ticket size, today we are at about 15-16 lakhs. So I think once we increase volumes, it will be around 14,00,000. Now , in terms of geography, I think the South is doing well, North is doing well , and the West is doing well. So I think our strategy would continue. We don't have any pocket or geography which is a clear logo for us. So we are pretty much comfortable because we have our experience, we have industry experience. So as of now, all the geographies are doing pretty well in terms of portfolio quality and we would remain focused on all these geographies and in future, if there is a need, then there might be a small peak here and there, but I think by and large our strategy is going to be there.

Understood. Because we are looking at some of the results of some of the H FCs, they were speaking about a few issues in the Southern region and a bit of issues in the Madhya Pradesh and so I was like because we have a good presence in these areas, so are we seeing any risks or are we seeing anything on ground in these specific regions in our book or maybe even initial….

Not at all. South is doing well. West is doing well. North is doing well, so we have not seen any stress.

Thank you very much.

Thank you. Next question is from the line of Harshit Toshniwal from Premji Invest. Please go ahead.

Hi, sir, congratulations on good set. The question is the cost of funds this quarter so, I think when we look at the sequential decline, is it that a lot of the cost benefits is passed on or what has led to this decline if you can help us know? And given our mix, if you can help us that within the bank loans, how much would be MCLR link ed and how much would be repo EBLR linked? And if you can also help that, how should we expect the cost of funds to pan out next year?

So there is no sequential decline, but year-on-year, we have seen a decline of 15 bps and this is largely has happened post the rating upgrade for us in Q4 of last year and Q1 of this financial year. So more or less , we have now received the benefit of the rating upgrade, which is in the range of 15 basis points as of now. Out of the total loan book, the term loans that we have around 40% of it is linked to repo and rest is linked to MCLR which are also short-term in nature, mostly 1 month and 3 months. Translation, again, it depends because we are also watching while repo is obviously being repriced immediately in some cases . In some cases it takes 2-3 months. But on the MCLR side, there is still no action as such from bank. So depends on when we see that transmission to start happening. What we are expecting, somewhere around 10 -15 basis points reduction over a period of the next 2-3 quarters in our cost of borrowing.

Sir, just on one thing, I think when we look at this 40%, maybe I think 50 basis points reduction if I take then I think 20-25 basis points of reduction in my overall cost of funds can be from this and on the public deposits also there should be. So I am just wondering that when you are saying 15 basis points reduction on a full year basis, are we being conservative here?

Say 40% or 40%, so our overall term loans are 40% of our total borrowings . Within that term loans, 40% is linked to repo. So on an overall basis, it is 16% roughly, not 40%. So on that also transmission comes with a lag, maybe it takes 2-3 months for certain banks to reprice. So it will come, but yes, the impact is 15 -16 basis points which is direct. Remaining is linked to MCL R, which will be over a period of time.

Understood, got it sir. Sir, in that context, when we look at our margins this year to next year, given the fact that in the Prime also we have not yet taken PLR cut anything right now, but there will be an increased competition and obviously, as you said, corporate loan all , etc., and mixed will help, but still maintaining the margins, do you think that it would be the best case scenario because for a 15 basis points decline only and still for our Prime and Emerging, the rate cut and the competition cycle will play out in the next 2-3 quarters. Just wanted to get your sense on that piece itself that the offset elements will be so effective that the corporate mix and the mix change is going to offset the entire impact?

We have multiple levers to increase our fees vis-a-vis compared to the impact because of policy cut and thereby impact on customers and therefore transmission to the customers, right. So they, as I mentioned to you, whatever is the benefit we get because of policy rate cut that we will pass on, to that extent we will pass on to our customers. At the same time, we are working on multiple things. From this year, we have started the LAP vertical, so that will be at a higher yield, number one. Number two, all the three segments, Prime, Emerging and Affordable, we are increasing yield. Number three, we will start corporate. So these three things will ensure that the yields will go up. And there will be some impact because of the policy rate cut. I think that can easily be offset with these initiatives.

And sir, on our credit cost, if I exclude the write-off then it is 46 basis points this quarter, if I am not wrong, 45 basis points, if you can help us that X of the recoveries, how should we look at the credit cost given the book will season over time, especially the Affordable one?

Our credit cost will be about 25 bps.

Okay.

X one-offs.

Got it. Sure. Thank you, sir.

Thank you. Next question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.

Thank you very much to giving me the opportunity to ask the question . Girishji, you and your team are doing a very good job in housing a finance company and we salute you are doing such fantastic work for PNB Housing.

Thank you, sir.

At this stage, can you tell on 25 number page of investor presentation , you sold 537 properties, so out of selling of this property , how much we lose or how much we gain? Can you tell the figure?

When we actually sell property on the retail side, we hardly lose anything. We don't lose at all. At times, it will be no loss, no profit on principle. So if we talk about corporate, there could be a haircut of about 20%, 30%, 35%. But when it comes to retail, literally there is no haircut. So whatever properties we have sold through SARFAESI action, legal initiation, so the loss is hardly anything. At the enterprise level, there is no loss . At an account level, you might have lost into few accounts, but you also get more in the other accounts and therefore it just gets netted off. So there is no loss in the retail side.

And you had given very fantastic projection, Rs. 1,00,000 crore AUM by next 2 years. It is really fantastic and we hope you will att ain this AUM figure. Thank you very much to giv ing me the opportunity to ask the question.

Thank you very much. Ladies and gentlemen, we will take that as the last question. I now hand the conference over to Ms. Deepika Gupta Padhi for closing comments.

Thank you everyone for joining us on the call. If you have any questions and answer, please feel free to get in touch with the Investor Relations team. The transcript of this call will be uploaded on our website. Thank you.

Thank you very much. On behalf of PNB Housing Finance Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.