PNB Housing Finance (PNBHF) looks promising among India's competitive housing finance sector companies, according to Motilal Oswal's latest equity research. The research house underscores PNBHF’s robust transformation, with a strategic pivot towards affordable and emerging housing segments, resilient asset quality, and operational efficiency. While near-term net interest margin (NIM) volatility is anticipated due to repo rate cuts, Motilal Oswal expects these headwinds to be offset by higher-yielding segments and prudent cost management. Investors are advised to monitor execution, as the company aims for a 19% CAGR in its loan book and 18% CAGR in profit after tax (PAT) through FY27, with RoA/RoE projected at 2.5%/13.3% by FY27.

Motilal Oswal’s BUY Call: Strategic Rationale and Target

Motilal Oswal reiterates a BUY recommendation on PNB Housing Finance, with a target price of Rs1,230, implying a 16% upside. This conviction stems from PNBHF’s successful execution of its portfolio transformation, strong growth in high-yielding segments, and a favorable risk-reward profile. The company’s current valuation of 1.3x FY27E P/BV is seen as attractive, with further re-rating potential as execution in retail segments continues to gain investor confidence[1].

Portfolio Transformation: Accelerating Growth in Affordable and Emerging Segments

PNBHF has evolved from a prime housing lender to a diversified player with a growing footprint in affordable and emerging housing. As of March 2025, these segments comprised approximately 26% of the total loan book (up from 21% a year earlier), and are projected to reach 40% by March 2027. The affordable housing segment grew a remarkable 183% YoY, reaching Rs50 billion, while the emerging segment posted a 21% YoY growth to Rs141 billion. The company targets Rs95 billion in affordable housing loans by March 2026 and Rs150 billion by March 2027, with a combined segment share of 34-40% in the overall loan mix by FY27[1].

Financial Performance: Key Metrics and Investor Levels

PNBHF is expected to deliver a 19% CAGR in its loan book and 18% CAGR in PAT over FY25-27, with improving profitability ratios. Here’s a snapshot of the financial projections:

Investor Levels:

Current Market Price: Rs1,057

Target Price: Rs1,230 (16% upside)

Key Support: Rs1,000

Resistance: Rs1,200

Recommended Entry: Accumulate on dips near Rs1,050–1,070 for medium-term gains.

Margin Outlook: Navigating Near-Term Volatility

While PNBHF faces short-term NIM contraction due to repo rate cuts, the impact is expected to be mitigated by a favorable product mix and resumption of corporate lending. Incremental yields in the affordable and emerging segments are higher by 200bps and 40bps, respectively, compared to the prime segment. Approximately 67% of borrowings are on floating rates, with 40% of bank loans linked to repo rates and the remainder to MCLR, ensuring benefits from a declining rate environment. NIM is projected to remain stable at 3.9–4.0% through FY27[1].

Operational Efficiency: Branch Expansion and Cost Control

PNBHF’s aggressive branch expansion—growing from 189 branches in March 2023 to 356 in March 2025—has focused on affordable and emerging segments, now accounting for over 70% of branches. The company aims for 500 branches by FY27, including 300 dedicated to affordable housing. Despite this expansion, the opex-to-average assets ratio remains efficient at 1.05% in FY25, significantly lower than peers in the affordable housing space (typically 2.6–4%). The cost-to-income ratio is expected to decline to 23% by FY27, driven by improved productivity and shared infrastructure across segments[1].

Asset Quality: Sustained Improvement and Robust Recovery

PNBHF’s asset quality has improved markedly, with GS3/NS3 ratios at 1.1%/0.7% as of March 2025—the lowest in five years. Despite a shift towards higher-yielding, riskier segments, credit costs are expected to remain benign at 25bps (excluding recoveries). The affordable segment’s GNPA stands at just 0.2%. The company’s strong collections infrastructure, legal recovery mechanisms, and regular property auctions underpin its best-in-class asset quality. Continued recoveries from a Rs14 billion written-off pool are expected to drive provision write-backs through FY26[1].

Corporate Lending: Quality-Focused Revival

PNBHF is resuming corporate lending with a quality-first approach, targeting Rs15–20 billion in disbursements for FY26 at yields of 12%. The company will cap average ticket size at Rs1.75–2 billion and prioritize lending to reputed developers, ensuring portfolio strength and mitigating risk. The corporate book will remain below 10% of the overall loan mix, maintaining a conservative risk profile[1].

Risk Factors: What Investors Should Watch

Key risks include sustained NIM contraction from heightened competition, potential senior management exits, and regulatory changes regarding bank ownership in group NBFCs. Specifically, the RBI’s October 4 draft circular could require Punjab National Bank to further reduce its stake in PNBHF, though this is not seen as imminent[1].

Valuation and Peer Comparison

PNBHF’s valuation remains compelling versus peers, trading at 1.3x FY27E P/BV and 10.3x FY27E P/E. The company’s consistent growth, superior asset quality, and efficient cost structure position it favorably for a further re-rating as confidence in its execution builds. Here’s a brief peer comparison:

Anderson Cooper’s Takeaway: Investment Outlook

PNB Housing Finance stands at the cusp of a new growth phase, with a well-calibrated strategy, robust financials, and prudent risk management. Motilal Oswal’s BUY call, with a target of Rs1,230, is anchored in the company’s ability to deliver superior returns through FY27, despite sector headwinds. Investors seeking exposure to India’s housing finance resurgence should consider PNBHF a high-conviction play, with clear entry and target levels and a vigilant eye on execution and regulatory developments.