PNB Housing affordable loan growth supports margin recovery from second half FY27

Investment View and Valuation

Motilal Oswal Financial Services has reiterated its Buy view on PNB Housing Finance (PNBHF), supported by stronger loan growth prospects, a shift towards higher-yielding affordable and emerging-market businesses, expected margin recovery and resilient asset quality.

The broker has set a target price of Rs 1,390, based on 1.5 times FY28E book value per share. At the report CMP of Rs 1,122, the target implies an upside of about 24 per cent.

1QFY27 Financial Performance

PNBHF reported 1QFY27 PAT of about Rs 557 crore, up 4 per cent year on year and in line with Motilal Oswal's estimate. Net interest income grew about 7 per cent year on year to approximately Rs 800 crore, also in line with the broker's estimate.

Other income rose about 25 per cent to approximately Rs 127 crore, 13 per cent above Motilal Oswal's estimate, while operating expenses increased about 10 per cent to approximately Rs 240 crore, in line with expectations. Net credit cost was negative 13 basis points after a Rs 29 crore provision write-back, compared with the broker's expected Rs 53 crore write-back.

Loan Growth and Portfolio Mix

The total loan book grew about 15 per cent year on year and 2.7 per cent quarter on quarter to approximately Rs 89,700 crore as of June 2026. Retail loans increased about 16 per cent year on year to Rs 89,200 crore.

Reported 1QFY27 total disbursements grew 18 per cent year on year to approximately Rs 5,900 crore following a change in recognition from cheque handover to cheque realisation. Gross disbursements grew 56 per cent to Rs 7,800 crore.

The affordable and emerging-market segments contributed about 46 per cent of retail disbursements and represented about 41 per cent of retail loan assets. The affordable book reached approximately Rs 8,560 crore, up about 49 per cent year on year. Annualised repayments declined to about 16.3 per cent from 20.5 per cent a year earlier, supporting net portfolio growth.

Motilal Oswal expects deeper affordable-housing penetration and the rollout of micro housing finance to support expansion in higher-yielding assets under management. Management retained its FY27 guidance for overall loan-book growth of about 18–20 per cent and affordable-book growth of about 50–60 per cent.

Management Growth Priorities

Management aims to increase the affordable and emerging segments' share of the retail portfolio to about 45 per cent by the end of FY27 and approximately 50 per cent over the following two years. It expects disbursement growth to accelerate from 2QFY27 after the one-off recognition change.

The affordable business is predominantly driven by new customer acquisition. BT-IN declined to about 4.4 per cent in 1QFY27 from approximately 5.0 per cent in 1QFY26.

Margin Outlook

Reported NIM contracted about 19 basis points quarter on quarter to 3.5 per cent. After adjusting for a 4QFY26 annualisation benefit, the underlying contraction was about 12 basis points. Portfolio cost of borrowings and yields were stable sequentially at 7.36 per cent and 9.48 per cent, respectively.

Management expects NIM, yields and borrowing costs to have broadly bottomed, with gradual improvement from the second half of FY27. The expected recovery is supported by better incremental yields, a greater mix of affordable, emerging and developer-finance businesses, and lower funding costs. Motilal Oswal forecasts NIM of about 3.6 per cent in FY27E and 3.8 per cent in FY28E.

Asset Quality and Credit Costs

Asset quality remained stable, with gross NPA and net NPA ratios of about 0.95 per cent and 0.58 per cent, respectively. A legacy account classified as fraud had already been fully provided for.

PNBHF recovered Rs 67 crore from written-off accounts during 1QFY27. Management expects recoveries to continue through FY27 and anticipates negative credit costs for the year. Motilal Oswal forecasts credit costs of about 25 basis points in FY28E.

Estimates and Return Outlook

Motilal Oswal raised its FY27E EPS forecast by 2 per cent to reflect higher loan growth. The broker forecasts FY26–28E loan-book and PAT compound annual growth rates of 21 per cent and 13 per cent, respectively.

• FY28E RoA: about 2.3 per cent
• FY28E RoE: about 13 per cent
• FY27E NIM: about 3.6 per cent
• FY28E NIM: about 3.8 per cent

Key Risks

• Limited NIM expansion in FY27 amid intense mortgage competition.
• Asset-quality deterioration and higher credit costs as the affordable, emerging-market and developer-finance portfolios season.