The stock of small-cap housing finance player PNB Housing Finance (PNBHFL) is down about 13 per cent from its 52-week high. The year 2025 has been rough for the company and the stock, with multiple exits among the senior management. The company saw its Chief People Officer, Chief Sales Officer and business head of affordable housing vertical resign in a span of four months. However, key among the exits is that of the MD and CEO, Girish Kousgi, who resigned after a three-year stint, playing a material role in taking the company through a phase of transformation – winding down of the legacy corporate loan book and entering the new segment of affordable housing. Notably, Carlyle, which held a 10-per cent stake, too, exited in May.

However, the management clarified in a call with stakeholders that these exits have nothing to do with internal challenges and only reflect their pursuit of career progression. It also reiterated its commitment to the strategy devised during the tenure of the erstwhile management, which involves the ramp up of the affordable housing vertical.

Meanwhile, the company has continued to post healthy growth and profitability (more on this below). It also got its new MD and CEO in Ajai Kumar Shukla in mid-December, for the next five years. All these helped the stock recover from the lows formed after the erstwhile MD’s exit.

The stock now trades at 1.4x trailing book value, a slight premium to the five-year average of 1.2x. Peers (which largely operate in the prime housing segment) Can Fin Homes, Bajaj Housing Finance trade at higher valuations of 2.3x and 3.8x respectively – Bajaj for its better growth and asset quality, Can Fin probably for its steady performance and absence of shocks similar to what PNBHFL endured. LIC Housing Finance trades at a lower valuation because of its relatively-higher GNPA. Asset-quality wise, PNBHFL and Can Fin are on a similar footing, but PNBHFL manages a larger AUM at ₹83,879 crore versus ₹39,657 crore by Can Fin. RoA-wise (return on assets), PNBHFL fares better than Can Fin Homes (see table).

Considering the positive factors listed below, it appears PNBHFL deserves a rerating. However, the market has the rerating on pause, possibly due to the factors mentioned in ‘Watch out for’. Nevertheless, in our view, the positives outweigh the risks, and so, long-term investors can accumulate the stock.

Business

PNBHFL manages an AUM of ₹83,879 crore (third largest HFC) with on-book loan assets of ₹79,771 crore, as of H1 FY26. Prime, emerging (carve-out from prime that focuses on tier-2 and -3 cities) and affordable housing (average ticket size of ₹15 lakh) constitute 61 per cent, 30 per cent and 8 per cent of the loan book. The wound-down corporate book (developer finance, term loans, etc.) accounts for a measly 0.4 per cent. PNBHFL forayed into the affordable vertical in Q4 FY23.

Within retail (prime, emerging and affordable), loans to salaried and self-employed individuals make 60 per cent and 40 per cent of the book. Non-housing products such as higher-yielding LAP (loan against property) make 27 per cent of the book.

In FY25, PNBHFL earned an average yield of 10.1 per cent, paid 7.9 per cent on borrowings, netting a spread of 2.2 per cent. NIM (net interest margin), which also includes interest earned on investments, came in at 3.7 per cent.

What works

Between FY22 and FY25, net profit grew at a strong CAGR of 32 per cent. Loan assets grew at a steady CAGR of 10 per cent. However, between FY19 (pre-pandemic) and FY25, the CAGR for loan assets works out to a flat 0.4 per cent. This largely has to do with the wind-down of the delinquent corporate loan book, which had a GNPA ratio of around 37 per cent in FY22. In H1 FY26, loan assets and net profit grew 15 per cent and 23 per cent year on year.

RoA has improved from 1.6 per cent in FY23, 2.2 per cent in FY24, 2.6 per cent in FY25 to 2.7 per cent in H1 FY26.

Asset quality is under control with a GNPA ratio of 1.04 per cent, gross stage-2 assets (31-90 days past due) ratio of 2.2 per cent and a collection efficiency rate of 99.2 per cent and 99.9 per cent in Q1 and Q2 of FY26. The NBFC is adequately capitalised with a capital adequacy ratio of 29.8 per cent and a comfortable debt-to-equity ratio of 3.6x.

PNBHFL has multiple levers to earnings growth. Its credit rating was upgraded to AAA/ Stable in November from AA+/ Stable. This combined with the gradual downward repricing of its floating rate borrowings (66 per cent of total borrowings) in response to RBI’s rate cuts could bring down borrowing cost. Faster growth in ‘emerging’, affordable housing vertical ramping up and the cautious restart of the corporate vertical could bump up the yield. This could take NIM closer to 4 per cent. The management has guided for a loan growth of 18 per cent for FY26 and has indicated a target of 15 per cent of retail book or about ₹15,000 crore for the affordable vertical by FY27.

Watch out for

Though the guidance sounds optimistic, execution could be challenging with a new management at the helm. The former MD was officially relieved towards October-end after ensuring a smooth transition. Hence, closely watching results of the upcoming quarters will be important. A key senior executive, already part of the affordable housing vertical, now appointed to head it, offers some comfort.

Though overall asset quality is under control, for the affordable vertical, as the book matures, 30+ DPD rate is inching upward – from 0.59 per cent as of FY25 to 1.4 per cent as of H1 FY26. GNPA ratio of the vertical is now at 0.5 per cent from 0.2 per cent as of FY25. The management’s argument is that this is par for the course and that these ratios are well below the affordable housing industry’s levels of 3.7 per cent and 1.3 per cent respectively, as of Q1 FY26, per a ICRA report. However, this has to be taken with a pinch of salt, as PNBHFL’s affordable loans seem to carry a lower risk profile with a yield of 12 per cent versus entrenched players in the space, who tend to have higher yields to the tune of around 14-17 per cent.

Further, currently PNBHFL enjoys negative credit cost – write back of provisions (on loans either provided for or written off) exceed incremental provisions. Provisions are written back when loans are repaid or recovered. The written-off asset pool stands at around ₹1,000 crore (corporate ₹675 crore) and the management expects recoveries from this pool to sustain over the next few quarters. A near-term possibility of higher provisions for the affordable portfolio, as it matures, and the drain of the said pool could mean positive credit costs and normalisation of RoA.

Published on January 3, 2026