PNB Housing Finance Limited (PNBHOUSING.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the PNB Housing Finance Limited Q3 and 9M FY '26 Earnings Conference Call. Please note that this conference is being recorded. I will now hand the conference over to Mr. Chaitanya Yadav, National Head, Corporate Planning and Investor Relations, for opening remarks. Thank you, and over to you.

Thank you, Rian. Good morning, and welcome, everyone. We are here to discuss PNB Housing Finance Q3 and 9 Months Financial Year 226 results. You must have seen our business and financial numbers in the presentation and the press release. shared with the Indian stock exchanges and are also available on our website. With me, we have our management team led by Mr. Ajai Kumar Shukla, Managing Director and CEO of the company. We will begin this call with the performance update by the management team followed by an interactive Q&A session. Please note that this call may contain forward-looking statements, which exemplify our judgment and future expectations concerning the development of our business. These forward-looking statements involve risks and uncertainties that may cause actual developments and results to differ materiality materially from our expectations. PNB Housing Finance undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances. A detailed disclaimer is on Slide 44 of the investor presentation. With that, I will now hand over the call to our MD and CEO, Mr. Ajai Kumar Shukla. Over to you, sir.

Yes. Good morning, everyone. I'm pleased to present our quarter and 9-month financial '20 performance. Let me give you some industry update and guidance. This quarter, RBI announced an additional 25 basis point reduction in the report, bringing it down to 5.25% with immediate effect. With this step, the RBI has delivered a cumulative 125 basis point cut in 2025, making one of the most meaningful easing cycles in recent years. The latest policy action is a clear positive for the real estate sector as we close out the year. It builds on the earlier rate reductions and further strengthens home buying affordability, particularly in the affordable and mid segments. The customers are most sensitive to interest rate movements. The decline in EMIs is expected to drop senators back into the market, supporting sustained demand momentum. With housing prices across the top 7 cities, rising by around 10% to 15% over 2025, the rate cut takes as an important question to preserve affordability. It offsets part of the price appreciation witnessed during the year and ensure that home ownership remains accessible to a wide base of the app. Overall, the combination of softer borrowing cost, resilient by sentiment and stable economic fundamentals positions the housing market and a strong footing as we move into 2026. Let me talk about the performance of the PNB Housing Finance Limited. The retail loan book grew by 16% Y-o-Y, to INR 8931 crores as on 31st December 2025. The total loan book of the company stood at INR 82,232 crores as on 31st December 2025. The affordable and emerging market segments now accounts for almost 39% of the retail loan book. With continued focus on collections, our credit cost for quarter 3 remains at minus 19 bps. The gross NPA stood at 1.04% as on 31st December 2025. The affordable portfolio continues to season we have witnessed some stake in delinquencies and expected trend at this stage of the business cycle. Importantly, delinquency level remains well within industry benchmark for the affordable housing segment. We remain deeply focused on maintaining portfolio discipline and continue to work forward achieving our long-stated target of 1% to 1.1% NPA. NIM remains stable at 3.6% during the quarter, achieved ROE of 2.57% for 9-month financial year 26 on an annualized basis. Let me now talk about in more detail on the performance achieved during the quarter. As far as disbursement is concerned, during the quarter, overall segment disbursement grew by 16% Y-o-Y, reaching INR 6,217 crores. Within this, the affordable segment saw a 15% Y-o-Y drop and 4.5% quarter-on-quarter decline in disbursement. -- driven by our strategic decision to recalibrate affordable business in a few challenging geographies due to government ordinance. However, the emerging market segment continued to outperform delivering a strong 25% Y-o-Y growth and disbursement. At this impacted pocket stabilized -- as this impacted pocket is stabilized, we expect affordable disbursement to revert back growth trajectory of Q4 financial year '26. The prime segment delivered 20% Y-o-Y growth despite the broader pressure on yield following the record. Looking ahead, our strategic priorities remain unchanged. We will continue to reinforce our focus on scaling the affordable and emerging markets segment, given the strong underlying demand and long-term growth potential. Also, we are going to start construction finance business in calibrated way tier on cities. Apart from that, we are also going to start emerging developer finance with invest ticket size up to INR 25 crores to INR 30 crores range in selected cities to improve our yield and NIM. As far as loan book is concerned, the retail loan grew by 16% Y-o-Y as on 31st December 2025. The loan book for emerging markets and affordable segment grew 31% Y-o-Y, reinforcing our commitment and focus on these segments. As I stated earlier, the company continues to focus on growth in emerging and affordable segments, which contributed 39% of retail book. The corporate book now stands at INR 272 crores as on 31st December 2025. The total loan book stood at INR 82,203 crores, and asset under management is at INR 348 crores. The total line accounts serviced by the company crossed INR 3.6 lakhs. As far as geographical presence is concerned, the total pan-India branch network of the company's secret but the affordable and emerging markets segment accounting for 79% of total branch network. Our expanding footprint in Tier 2 and Tier 3 cities positions us well to capture increasing demand in these markets. Aligned with our long-term growth ambitions, we expect to add 40 to 50 new branches annually to deepen our business in Tier 2 intercities. If I talk about asset quality, the gross NPA improved to 1.04% as on 31st December 2025, as compared to 1.19% on 31st December 2024 and 1.04% as on 30 September 2025. During the quarter, we recovered INR 49 crores from retail and corporate segment. The company has a remaining return of pool of around INR 650 crores in corporate and around INR 350 crores in retail. As far as borrowing mix is concerned, our cost of borrowing improved by 19 bps to 7.50% in Q3 26 driven by unwind negotiations with banks and the impact of reported cuts. As far as margin is concerned, NIM remains in line with our guidance level at 3.63% for the quarter versus 3.67% in quarter 2 in '26. Profitability. Return on asset stood at 2.57% annualized in 9-month financial year '20 as compared to 2.48% in 9 months financial year '25. Our ROE is at 12.31%, annualized at 9 months financial year '26. Let me reiterate that we will continue the guidance of retail book growth in the range of 17% to 18% with higher focus on emerging and affordable segment. With this, I would like to hand over the call back to Chaitanya. Thank you so much.

Thank you, sir. I will now request Vinay, our CFO, to talk about the financial numbers.

Thank you, Chaitanya, and a very good morning to everyone. I'm pleased to walk you through our financial results for the quarter ended 31st December 2025. As you have already heard, our total loan book as of 31 December stood at INR 82,200 crores, growing 14% year-on-year. Our retail loan book grew 16%, reaching to INR 1,930 crores. Affordable and emerging market segments grew 31% year-on-year put together and now constitute around 39% of our overall retail loan book. Let me start with an overview of our financial performance. This quarter, our yield declined to 9.7% versus 9.95% in Q2 FY '26. This is driven by a reduction in corporate book. As we mentioned at the end of previous quarter, there was 1 large corporate account, which got foreclosed. So that led to a reduction in our mix of corporate book and impacted 10 bps on my yield. We covered it largely through reduction in cost of borrowing, but there is still some marginal impact, which was left out on the net. Also, the impact was there due to lower disbursement yields and higher runoffs. At the same time, our cost of borrowings improved by 19 bps sequentially to 7.5% in Q3, driven by ongoing negotiations with banks and the impact of reports. The incremental cost of borrowing improved to 7.2% in Q3 as compared to 7.4% in the previous quarter. Our net interest income during the quarter was INR 72 crores, which is a growth of around 11% year-on-year. NIM, as mentioned, is at 3.63% compared to 3.67% in Q2 FY '26. Our operating expenses grew 16.7% and 10.5% quarter-on-quarter to INR 240 crores versus INR 217 crores in Q2. This increase includes onetime expense of INR 6 crores on account of the implementation of new labor goals. Plus, there is a timing difference in ESOP. There was a release last quarter on account of exit of previous MD. And now the cost is normalized. So this cost looks a bit of [ ablation ]. Overall, our OpEx to ATA for Q3 is 1.09%. We continue to maintain our OpEx to ATA guidance of being rate down between 1%, 1.1%. Our pre-provision operating profit has grown 8.4% and ex one-offs, it has grown 10% year-on-year. Credit cost continues to be benign. It is 19 bps negative. As MDs are also clarified, we recovered around INR 49 crores from written-off pool during the quarter. Our stood at 520, up 7.7% year-on-year. included 9 bps on a year-on-year basis at 2.57% in 9 months FY '26. ROE is at 12.3% and our overall CRAR stands at INR 29.6 with Tier 1 capital at 29.06%. Our debt to equity is now 3.63, and our book value stands at INR 710. With this, I now hand it over back to Chaitanya for taking the call forward.

Thank you, Vinay. Rian, we can now open the call for the Q&A, please.

[Operator Instructions] We take the first question from the line of Abhijit Tibrewal from Motilal Otwal Financial Services Limited.

First of all, congratulations to Sir Ajai Shukla on assuming the role of MD/CEO at PNB Housing. Sir, first question on the awardable book. you have called out in the present and in your opening remarks as well that you have restricted tickets in certain geographies. So just trying to understand which geographies are this right? And what are the underlying reasons for restricting ticket sizes, if you could just help us understand that.

Thank you, Abhijit. As far as the affordable book is concerned, there are some challenges in -- especially in some part of Southern market. It was not all across India. So we recalibrated our strategy in those markets. This was primarily because of some government ordinance. And that is already -- that field is already out. I think we will rework and we'll come back again on the new methods of defining our affordable strategy for the southern market.

Got it. And sir, I mean this ordinance that you're talking about, is it the MFI avenues that came last year, almost a year back?

Yes, it was that, but it impacted the affordable business also because when any information comes to the market, it impacts the other segments also.

Got it. And these are not geographies or customers which have got impacted by tariffs or anything, right?

So there was some partial impact on geography also. So for example, Tamil Nadu, we saw some challenge. Because of that, we decided to reevaluate our strategy in TN market. And since the market is again stabilized. And the government orders is also now stabilized now. I think we will be focusing again on those markets.

Got it. Sir, then the second question I had was, I mean, late last night, you declared a corporate account as broad account despite you called out that you've written off this account back in FY '23. So just trying to understand, I mean, this come up during any of your RBI or NHV inspections? And a related question here is, I mean, while you've been around here for a little over a month now, have you had a chance to take stock of the loan book? Basically, how is the asset quality and would you need to take any higher provisioning on the book in the coming quarters?

So as far as this -- the fraud which we reported, as you rightly said that we already written off this account in 2022, '23. And there is no material adverse effect on financial of the company. And we are currently undertaking appropriate legal measures in this case. The amount sanction was INR 2.75 crores. We reported INR 275 crores. And the current outstanding is INR 237 crores around -- and since this is already for business, so no financial impact. I don't think...

On the asset quality front, Abhijit, we don't foresee any increase in any of the segments. We are adequately provisioned across all the stages, and that may continue.

Got it. Sir, I mean, then I mean declaring this account as a draw now, was there some technical reason behind it?

Yes, it was basically due to some recent developments, which have happened in that particular account. And hence, as per the process, after following the new process of giving principles of natural justice, we have then decided to declare it as a fraud.

Got it. And sir, then the last question I had was, I mean, have you made any PLR changes in the last quarter or any changes effective January this year?

No, not yet. No.

This is all from my side. Maybe I'll come back in the question queue. And I wish you and your team the very best.

We take the next question from the line of [ Biral ] Shah from IIFL Capital.

Congratulations, Ajai, on the new role. It has been now 1 month since you joined NHS I just wanted to understand, say, from your perspective, first of all, what is it that you are finding it, say, different versus your expectations when you were joining? And secondly, more importantly, if there is any change or an update to the strategy of, say, growing the share of affordable emerging? Any say, anything within say underwriting or the collection practices that you think you can make it more robust? Any of those things, what would be your views on this, please?

Thank you, Biral. I think last 30 days, what I observed that we are on the almost similar kind of path, which any other housing finance company works. And as already said, and I retired that we'll continue the guidance, which has already been given in the market. We'll focus on our emerging and affordable business. So there will not be much change in the strategy. of the organization, it will continue and will further improve and exclude the opportunity where we can get the better yield and I don't see any challenges as wine also confirmed that on the quality of portfolio because even in affordable also, we are much better than any affordable company in this industry. So I don't think there is any change as far as quality and all those things.

And just as part of this only, so I think earlier guidance with regards to see the share of affordable and emerging mix, stated number was 40%. And then I think a couple of quarters back, there was some reclassification in emerging and we had kind of highlighted that we can -- the percentage now can look higher. Do you want to give any percentage target over the medium term?

Yes. So we had -- we currently 39% and we are expecting this to grow by 45% to 50% in the range of 45% to 50%.

As a share, right, the emerging and affordable?

Emerging and affordable yes, together.

Got it. And just on the question that I asked, sorry, if I'm repeating. But with regards to the underwriting practices or collection practices, you don't anticipate any change because of which there can be any disruption to a growth or anything?

No, I don't see that there will be any disruption because I think things are going very well as far as underwriting and collection both.

Got it. And sir, my second question, Vinay, was to you. How soon can we get to, say, or convert our overall cost of funds to now the incremental cost of funds 7.2%. And what are our, say, medium term now NIM trajectory guidance, if you could help us with that?

So this NIM as of now due to pressure on account of runoff and the new disbursement yields already running lower than our portfolio yield. So that pressure is going to continue. We are offsetting it with the reduction in cost of borrowing. So we continue to maintain the guidance of NIM between 3.6% to 3.7%. Post Q4, we will recalibrate looking at once the stability happens on repo, how it is going to play out in the next year. And once we launch CF, once we launch this developer finance, I think these will obviously add on to our overall yield profile. So next year, probably, we might see some expansion once these new segments start delivering.

We take the next question from the line of Kunal Shah from Citigroup.

Continuing on the question with respect to, say, the under the new management. Just wanted to understand any key priorities that would be there or maybe it's the business as usual? Any key priorities from your end? And in terms of the ROA, we are still guiding for 3.6% to 3.7% ROA, we still have the benefit of, say, the recoveries, which is there -- so maybe in terms of taking the ROAs up and what would be the aspirational ROA target over next 3 or years?

So let slightly correct here, I think the -- you're talking about NIM or you're talking about ROE?

No, no, sir, I was saying like margins, we are guiding for 3.6% to 3.7% margins okay. And we still have the benefit of the recoveries, which would eventually go away over the medium term. So then maybe in that scenario of steady margins and maybe some normalization of credit cost, how do we see the ROE panning out over 2 to 3 years?

I think this will be in the range of 2.5% to 2.6%. ROI will remain stable at the rate of 2.5% 2.6%. If I tell you -- that 9-month financial 26s 2.57% as of now and which will be in the range of 5 to 2.6, 0.65 only or well within the data only.

Just to add on Kunal, there are 3 levers, as MD also mentioned, we are starting. So that will definitely support us on the NIM. Secondly, we are also starting a small developer finance, which is also going to be a new vertical where average ticket size will range between 25 to 30 and yields will be in the range of 11% to 10%. So that will also be NIM accretive. And on cost of borrowing, again, we have a few levers like if the rating upgrade happens in a quarter that will also lead to substantial benefits on our cost of it. So these factors, apart from shift that we are making towards emerging and affordable, it will be somewhere around 50%, let's say, by end of next year. So by then, we would have some benefit. And after that, these things will definitely support the current NIM profile. Actually, it will help in improving the NIM profile.

Yes. And in terms of this small developer and CF, we had gone through that cycle and we had run down this entire portfolio -- so maybe learning from the past experiences, any differences in the business model that we would now incrementally cater to -- and how much would it scale up to? Maybe is there any gap in terms of the proportion we would want to or maybe can it get towards like 3%, 5% of the AUM over a 3-year period or no, we'll not be so aggressive?

Yes. So Kunal, I think what we have planned is that we will be having almost 8%, 10% of my total book. as our exposure in construction finance and emerging developer portfolio. In an point of time but would bill the range of 8% to 10% only. That's the metal exposure we want to keep that all will remain the retail business as far as policy is concerned, so the emerging developer and the construction fun, both will have a separate policy. Okay, there will be a difference between both the policies. because we are the emerging developer financing will add the construction finance will start. So we'll -- we are in the process of designing emerging development policy. The construction policy is already in place. And that's how we have started sourcing business also. But as soon you will see that possible we'll start in Q4 or maybe first quarter of Q1.

Sure. And one last question, if I can squeeze in. That's with respect to affordable again. So you are maybe when you mentioned like you have recalibrated the growth in some geographies and ticket size cap in select geographies. Overall, when we look at it, it's like still the ticket size of more than 1,500,000 is something which is coming up, which is coming down actually. So is that maybe in terms of the ticket size thing? Or this is something similar to what you indicated challenges in the southern market? And even in terms of the repayment rates in affordable housing, when we look at it with the disbursements, which have been there of INR 76 crores. we are still seeing almost INR 600 crores of operation. So there's hardly been any rundown which has been there in that portfolio. So maybe what could be the reason for that? So the repayment, prepayment run rate still appears to be quite low in the affordable housing, yes. And where should we aim this segment to grow, say, over the next 12 months in terms of the growth ratios?

This is Valli Sekar. See, regarding this disbursement which you are asking about -- the ticket sales will slightly go down because now there is a slighter concentration towards the PMA as well. So the ticket size from the last year has slightly come down also. And this recalibration is particularly in the southern markets. As you all are aware that Tamil Nadu used to be our #1 contributor in terms of the business. So when we face that audience issue in the first quarter and first quarter, by second quarter, we had recalibrated certain product qualities in certain branches and on the ticket sale also. So the effect that some are final effect on the quarter 3. But now in quarter 3, since the audience has been retaken back. Now we have again come back with the policies. And by Q4, we will be coming back again. as usual in those markets. And the guidance remains the same. We'll be growing quarter-on-quarter in 25% to 30% is the level of growth, which we are expecting, yes.

We take the next question from the line of Nischint Chawathe from Kotak. .

Most of my questions have been answered. Just a small one on competition. On the affordable side, you have got the increment rates stable sequentially, do you see competition in the sector? And do you see these rates going down? And likewise, in the prime side, given the fact that we are probably towards the fag end of rate cuts, do you see the intensity of competition to reduce?

So Nischint, I think the competition is all across in this industry. So I think it's a very competitive industry. In affordable also, there is enough and good completion as we see in prime business. But just that competition is there, there will not be much impact on the pricing because the range wherein we are operating is already very competitive pricing in the market. So I don't see there would be much more price drop in the market, especially in the affordable segment. I think this will remain as it is. And as far as prime discussed, prime, there is definitely is because of recent report cut, there is a challenge in the market from Natalie banks and the private sector banks. But newer segmentize ourselves in a very different way. So close to 45% of our portfolio is self-employed and 55% salaried. So we get better margin in self-contract. That is why we are able to maintain our margin and NIM.

Have you called out the difference in rates between salaried and self-employed? .

So yes, there is a risk is rising. So we always do it pricing. So salaried, always these are softer than self-employed.

Got it. And you're increasing the share of construction finance and emerging developers, sort of technically increasing the risk profile of the company to some extent. In this backdrop, do we really see a rating upgrade given the fact that the risk will incrementally be slightly higher?

So yes, definitely, the construction finance business is always a riskier business in the market. But I think the kind of policy and the underwriting is standard, we are going to certainly we have set. I think we will be sale easily. They're stent also there is a cap on the overall growth. We are not going to grow very aggressively here. it will remain range bound between 5% to 7% in the next 2 to 3 years. So it will not grow so aggressively. And large part is to retail. So that is not going to be a challenge.

And then you are expecting an update probably in next 1 or 2 quarters away?

Yes. I mean we are hoping for it.

Sure, sure. Thank you very much and all the best.