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

Ladies and gentlemen, good day, and welcome to the PNB Housing Finance Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Ms. Miti Gupta, Investor Relations Manager, for opening remarks. Thank you, and over to you.

Thank you, Reyan. Good morning, and welcome, everyone. We are here to discuss PNB Housing Finance Q1 FY '26-'27 results. You must have seen our business and financial numbers in the presentation and the press release shared with the 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, this call may contain forward-looking statements, which exemplify our judgment and forward 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 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 45 of the investor presentation. With this, I will now hand over the call to our Managing Director and CEO, Mr. Ajai Kumar Shukla. Over to you, sir.

Thank you, Miti. Good morning, everyone, and thank you for joining us today. Before I discuss our performance for the quarter, let me briefly touch upon the industry environment. India entered financial year '27 from a position of relative macroeconomic strength, although external risk increased materially during Q1. Domestic demand remained resilient, supported by government infrastructure spending, healthy banking system liquidity and steady service activity. However, geopolitical tension in West Asia, volatile crude oil prices and uncertainty around the monsoon led to a slightly more cautious growth outlook. The housing finance sector particularly continues to benefit from strong structural drivers, including rising urbanization, increasing homeownership, aspirations, favorable demographics and continued government focus on affordable housing. Demand remained healthy across retail mortgage segments during the quarter, particularly in Affordable and Emerging markets, which continue to offer significant growth opportunities. During the quarter, the RBI maintained the policy repo rate at 5.25%, providing a stable interest rate environment for borrower while also announcing measures to support liquidity and funding access within the financial system. Further, RBI revised its financial year '27 GDP growth forecast from 6.9% to 6.66% in its June 2026 policy review. Reflecting concerns around higher energy costs, supply chain disruptions and weaker external demand. Nevertheless, India continues to be among the fastest-growing major economies with private consumption and services providing key support. The quarter was also characterized by heightened global uncertainty arising from the U.S.-Iran conflict, which led to higher crude oil prices, increased market volatility and tighter liquidity conditions. Despite these external challenges, India's macroeconomic fundamentals remain resilient and housing demand continued to hold up well. Now coming to PNB Housing Finance. We have begun financial '27 on a steady note, reflecting the strength of our retail-focused business model and disciplined execution. Further, and we note that starting this quarter, disbursements are being recognized based on check realization rather than check handover basis. On a comparable check handover basis, disbursement delivered a strong 56% Y-o-Y growth, reflecting sustained business momentum. Disbursement growth should normalize from Q2 onwards and should reflect a strong growth trajectory going forward. Post the onetime impact of this transition, disbursement for Q1 '27 grew at 18% Y-o-Y at INR 5,882 crores. At segmental level, Prime and Emerging Market has seen a double-digit growth at year-on-year level and stood at INR 3,083 crores and INR 2,029 crores for Q1 '27 with a disbursement of INR 555 crores in Affordable segment, which is currently less than the target level. We are actively focusing on increasing the productivity of Affordable branches, while select Prime and Emerging Market branches also started contributing to Affordable business. This number which I quoted, INR 555 crores, is basically net, as I said that we have now transitioned from gross to net. Overall loan book grew by 15% Y-o-Y to INR 89,670 crores as on 30th June 2026. While the retail loan portfolio increased by 16% Y-o-Y to INR 89,178 crore, the Affordable and Emerging market segment continue to be our key growth engine, growing 27% Y-o-Y and contributing 41% of retail portfolio. We remain on track to increase the contribution to 45% by the end of '27. I'm pleased to share that as part of our new initiative to augment high-yield portfolio growth, we disbursed INR 71 crores under emerging developer finance program. We also started Affordable business from selected Prime and Emerging branches, successfully disbursed in the first month of the quarter, which was June, almost INR 30 crores in Affordable business from these branches. Also, as part of our growth strategy, we have commenced full buyout transactions and acquired loan assets aggregating to INR 146 crores during the quarter. These initiatives will support faster scale up of the loan book by enhancing portfolio yield and maintaining portfolio quality. We are particularly pleased to have facilitated over 7,000 subsidies under the PMAY 2.0, reinforcing our commitment to affordable housing and supporting the government vision of housing for all. Our corporate loan book stood at INR 493 crores as on 30th June '26, with disbursal of almost INR 215 crores during Q1 '27. We continue to accelerate our digital transformation agenda by reimagining customer journey and core operation with a digital-first mindset. Our focus on conversational AI and document intelligence is helping simplify processes, enhance service quality, improve responsiveness and strengthen operational efficiency. During the quarter, we successfully completed voice AI proof of concept for the sanctioned but undisbursed pool and pre-due collections with encouraging results, while AI-powered policy and knowledge assistance are currently under evaluation. I wanted to share that 100% of our fresh disbursals are happening through our new LOS platform, which we call SFDC. More than 70% of our business is now being onboarded through our in-house onboarding app, which is the Infinity app. And more than -- sorry, 2,600 e-sign executed through our migratory platform. We also remain focused on building proprietary AI capabilities as reflected in our in-house computing intelligence platform. Alongside enabling paperless operation and supporting our sustainability objectives, these initiatives are helping us deliver a more seamless customer experience and create long-term value for all stakeholders. As far as geographical presence, on the distribution front, we added 12 new branches during the quarter, taking our network to 404 branches. We have also begun leveraging our selective Prime and Emerging markets branch network to expand our Affordable business and early results from the co-located branches models have been encouraging. As far as asset quality, asset quality continues to remain one of our key strengths. Gross NPA remains less than 1%, which is 0.95%. Minor increase seen in [ 1390-plus ] is cyclical in nature and are expected to come down in Q2. During the quarter, legacy account was classified as fraud. The exposure had already been fully provided in the year '22, '23 itself. And therefore, it has no incremental financial impact on the company. Recoveries remained healthy at INR 67 crores from written-off pool, resulting in a negative credit cost of 12 basis points during the quarter. The company is now left with written-off pool of around INR 340 crores in retail. As far as margin is concerned, our spread remained stable sequentially at 2.12%, while NIM moderated by 19 bps Q-on-Q to 3.50%, out of which 12 bps is attributable to increase in leverage and 7 bps in true-up impact of Q4 '26. Our portfolio has improved to 9.48% for Q1. We witnessed an improvement in incremental yield across all businesses verticals, which will support future margin performance. Marginal increase in cost of borrowing to 7.36% during Q1 financial year '27 compared with 7.35% in previous quarter. Incremental cost of borrowing increased by 18 bps, primarily due to higher tighter liquidity condition and volatility in financial markets. As far as profitability is concerned, as a result, profit after tax for the quarter grew by 4% Y-o-Y to INR 557 crores, leading to ROA of 2.37% and ROE of 11.44%. Our capital position remains strong with a capital adequacy ratio of 28.26% and Tier 1 capital ratio of 27.87% as of June '26. With a strong balance sheet, improving operating efficiencies, accelerating digital transformation and continued focus on portfolio quality, we remain well positioned to deliver sustainable growth in the coming quarter. Just to conclude and summarize the conversation, let me again reiterate that what we expect that margin seems to be bottomed out. And from second half onwards, gradually, there should be improvement in margins. Yield has also bottomed out and it would improve by change in mix. As far as growth in quarter 1, primarily what worked well for us, improvement in productivity by use of technology and enhancement in distribution. Strengthening of our team, particularly in Affordable and Emerging Market segment. July over June is much better in Affordable under new leadership team, particularly new CBO, driving additional volume through existing Prime and Emerging Markets, which has started contributing almost 15% to 18% of Affordable business in July itself. Focused approach on low-performing branches, expecting Q2 to be much better than Q1, particularly in Affordable business, maintaining full year guidance of 18% to 20% overall book growth, also maintaining growth guidance of 50% to 60% in Affordable loan book. Thank you so much. Now I would like to hand over the call to our CFO, Mr. Vinay Gupta.

Thank you, sir. Good morning, everyone. I would now like to talk about a few key financial parameters. As mentioned by MD, after onetime impact of change in disbursement recognition, our disbursements grew 18% year-on-year to INR 5,882 crores in Q1. We will catch up on our growth rate from next quarter onwards. Further, I'm happy to share that our runoff rates have also stabilized to around 17% versus 19% to 20%, which we witnessed in the last few quarters. Our retail portfolio also grew 16% year-on-year to INR 89,180 crores. As mentioned earlier, on check handover basis, we have delivered a very strong quarter. Our disbursements grew 56% year-on-year, and our loan book would have grown at around 18%, in line with our guidance. We should catch up on our guided numbers, guided growth rate from the next quarter onwards. During the quarter, our net interest income grew 6% and our gross margin grew 9%. As mentioned in the previous quarter, our yield should start improving from Q1 onwards. Accordingly, happy to share that this quarter we delivered a marginal improvement in yield at 9.48% versus 9.47% in previous quarter. However, due to ongoing global geopolitical uncertainty, our cost of borrowing also witnessed marginal increase to 7.36% from 7.35%. This is primarily due to increase in our incremental cost of borrowing by around 18 basis points. Despite the prevailing headwinds, we maintained our spread at 2.12%, demonstrating resilience in our business model and disciplined pricing approach. The 19 bps moderation in NIM during Q1 relative to Q4 was largely attributable to higher leverage and lower yield on total assets. Further, there was a true-up for Q4, which was basically due to monthly conversion versus a number of days conversion as we saw an inverse relationship in Q4, which got trued up during this quarter. Going forward, we feel NIM has largely bottomed out and should start improving from second half of this financial year. Operating expenses increased 10% year-on-year to INR 237 crores from INR 216 crores in Q1 last year, primarily due to manpower addition and annual compensation revisions. However, operating efficiency continues to improve with OpEx to ATA declining by 9 basis points to less than 1% now versus 1.08% in Q4 FY '26. Supported by healthy operating leverage, our pre-provision operating profit also grew 9% year-on-year to INR 689 crores. On asset quality, gross NPA continued to remain less than 1% mark and stood at 0.95% as of June 30, 2026. Company continued to deliver healthy recoveries from its written-off pool, recovering INR 67 crores during the quarter, which translated into a negative credit cost of 12 basis points. PAT for the quarter grew 4% year-on-year to INR 557 crores. ROA stood at 2.37%, while ROE stood at 11.44% for the quarter. Balance sheet remains well capitalized. Capital adequacy ratio is at 28.2%. Our net worth is at INR 19,800 crores, with book value now increasing to around INR 760. With strong balance sheet, healthy capitalization, robust asset quality and continued focus on operational efficiency, we remain confident in our ability to deliver sustainable and profitable growth. With that, I conclude my remarks. Thank you for your continued support. And with this, we will now open the call for Q&A.

[Operator Instructions] We take the first question from the line of Viral Shah from IIFL Capital.

So I have 3 questions. One is first on the margins, right? So 2 parts over there. How should we look at, say, yields and cost of fund trajectory from here on? Say, of course, all of this is assuming the macro kind of remains stable in the near term. But more importantly, does the thesis of, say, the gradual NIM expansion as the book mix kind of changes with the scale-up of your Affordable, Emerging, CF, et cetera, more from a medium-term perspective, not the next 2, 3 quarters, but, say, over the next 2 years, does that thesis kind of still hold true? So that was my first question.

Thank you so much, Viral, for joining the call and asking. You know, as I said in my conversation, that we expect that margin are bottomed out and yield is also bottomed out. And cost of fund also, we strongly believe that it should -- it is also bottomed out. So gradually, maybe H2 onward, we will see some improvement. And I would say medium to long-term perspective, I think this should help to the -- in the margins of the organization. As far as the mix is concerned, I think you rightly said that we are positioning ourselves in right mix approach. So construction finance portfolio, as I said earlier also, we will restrict it to 3% of my incremental 50% of my book in this year, which is '27, which will help us in overall improvement in my basically margin. And also the mix of Affordable and Emerging will improve. Like we saw that currently we are placed at 41%, which used to be less than 40% earlier, and expecting to touch 45% by the end of this year. And which will further, if I talk about 2-year horizon, it would be nearly 50% of my overall book in Emerging and Affordable.

Got it. No, that's very clear. And on the second, I would say, question is more with regards to growth. I know you and Vinay also pointed out that of course this quarter there was this recognition change, but when I look at, say, the gross number, right? So gross number is a very strong number of 55% plus disbursement growth. Now this is not lost, right? This will come through in the second quarter. So one is, if I look at, say, the second quarter with this kind of a trajectory, should we -- and of course there is also somewhat further, of course, growth that will come through on this number. Should we expect this, the gross number to be whatever it is currently in this quarter plus the growth and that trajectory to sustain in the near term?

Yes, I think if I talk about Q2, I'm sure that you're asking about next quarter, which is a running quarter from Q1. I think we will beat -- we will try to beat both the numbers, which is gross or net. I think net will also give us benefit of -- whatever hit we have taken in Q1 will give us fruit in Q2. And also we expect that our gross Q2 will also be much better than Q1, July already we have witnessed very good momentum in terms of gross and net.

Got it. And with that kind of a trajectory your 18% to 20% kind of loan growth guidance seems very conservative. Would that be a fair assessment?

I told that we are maintaining...

These are coming down.

So I think 18 to 20%, that's the guidance which we are going to definitely, our team is focusing on better growth than what we have given guidance. I think we should do much better than what we have given guidance.

Got it. And my last question is basically on the micro housing. You have mentioned that you have started it from this quarter. Of course, in terms of, say, the contribution and the P&L also, it will take quite some time. But just wanted to get a sense of about how are you going about building this book in terms of are these separate branches, how is the team, underwriting, sourcing, et cetera?

So like we did experiment and we got very good fruit in Prime and Emerging to source more Affordable, and we got very good number in the month of July in Prime and Emerging of Affordable. We will also do currently micro housing business from our Affordable branches. I don't think at this point of time we need to open more number of branches. We will leverage our existing branches to contain our OpEx also, because that's the key matrices to be watched. In Q2, the policy was already formulated, is rolled out, people have started sourcing, but real fruit you will be able to see from H2 onward.

Congrats and all the best.

We take the next question from the line of Sameer Bhise from Dymon Asia.

Just had a couple of questions. Firstly, on the leverage impact on margins for this quarter. Vinay, can you just guide us through how it has played out? Because if I see debt-to-equity has moved just from 3.7 to 3.72, but the NII impact looks a tad sharp. So I think some sense there will be useful.

So Sameer, those were the ending numbers, end of the quarter numbers, but on an average our leverage has gone up from 3.6 to 3.75. So that is one reason. Secondly, there is also a flow-through impact. If you see, Q4 generally is very high on disbursements, and most of that got realized in the current quarter, and hence it actually translated into higher borrowings during the current quarter. Plus, there is an impact of also on the overall yield being slightly lower while the loan book yield has improved, but overall yield has slightly moderated due to lower investment yields. So these are 2, 3 factors which have led to impact of higher leverage.

And secondly, the entire gap in the actual reported disbursement number and the gross, which is the stated number. Is it entirely due to the affordable housing segment, or there is some other segments as well, like Emerging and all?

That's a combination of all the businesses. So whatever impact which we witness is a combination of Prime, Emerging, and Affordable. Because in retail business and wholesale completely we are migrated from check handover to basically debited from our account, money debited from our account.

So then can you still provide a mix on a gross basis? Because if I see Affordable disbursement in the reported number, look down on a Y-o-Y basis also, which is obviously not the case. But from a mix perspective.

So, I think Affordable, if we compare apple to apple, which is you know Y-o-Y growth, I would say this is growth of almost 11% in Affordable.

On a check-handover basis.

On check-handover basis. But since we have moved from check-handover to realization, and that is just particularly...

Yes...

Sorry, handover business is 11% growth in Affordable also.

Okay. And finally, on credit cost, should one see that credit cost kind of turns to positive territory in second half? And then this, how would ROA kind of shape up given that we have optimism on NIM, but we will also have normalization of credit cost? So some trajectory there will be useful. So that's all from my side.

No, Sameer, this year I think we should continue to remain negative. We still have line of sight on good recoveries quarter on quarter this year at least. So this year we should be able to maintain the negative credit cost.

We take the next question from the line of Abhijit Tibrewal from Motilal Oswal Financial Services Ltd.

Yes, I was just trying to understand, for the benefit of all of us, if you could explain this true-up. Essentially you did mention a couple of things, that one was the monthly versus number of days during the quarter. So, what exactly happened? The 7 basis points difference, is it more to do with maybe Q4 having lesser number of days, so lesser interest income? And to that extent it got overstated and should have been lower by 7 basis points. Is that the right understanding? Or is there some timing difference because of this true-up that you pointed out?

Yes, you rightly explained. I think that is the exact reason. Q4 being a shorter quarter, only 90 days, so we get the benefit in NIM because there the annualization happens based on monthly annualization. So it is a monthly which -- monthly numbers which gets annualized for NIM calculation, whereas that gets start getting normalized from Q1 onwards. So Q4 you will get some benefit, but that is more like artificial. And hence ideally we have given, ideally what should have been a Q4 number, and hence that is a 7 bps delta, which was purely on account of the calculation difference in Q4. So adjusted for that, the gap is only 12 bps in the current quarter, which is on account of increasing leverage and higher -- lower yield on the overall total asset.

Then, sir, on the margins, you called out earlier during the opening remarks that margins have bottomed out. So, should we now think about margins as maybe remaining stable in 2Q and then starting to expand from the second half onwards? Because I remember you also mentioned about this incremental cost of borrowing being up about 18 basis points in the first quarter. So won't that have some bearing on cost of borrowings in the coming quarters? I'm just trying to understand how are things on the incremental cost of borrowing front. Have things cooled off a little bit in the last maybe 1.5 months?

So yes, I believe there is some improvement versus what it was, let's say, at the beginning of the previous quarter, but still it remains elevated. The reason that we are positive about NIM bottoming out is because we see improvement movement in our yields now. So it has started improving from Q1 onwards, and now Q2 onwards, with higher contribution of Affordable CF business and Emerging business, we feel that we will be able to offset the impacts, if any, of cost of borrowing, as well as of any further impact of leakage. So yields are giving that confidence, and we should be able to offset that. Plus, in case there is any positive movement on our the ratings also, because we are yet to get 2 more upgrades from 2 rating agencies. So that is another lever which will help us further on the cost of borrowing side.

Got it. And then the last question that I had was on the ROEs. You mentioned that at least this year we are confident that credit cost should remain negative, but at least the quantum of writebacks, the quantum of recoveries, they are naturally slowing down. So, from here, I mean, as we see this quantum of negative credit cost writebacks normalize over a period of time, maybe over the next few quarters, how should we think about the ROAs this year and next year?

So as we guided, I think on a long-term basis we are expected to settle around 2.3% kind of a ROA, 2.3% to 2.35%. And for this year, I think it should be in the range of 2.35% to 2.4%. So 2.4% is what largely we are targeting this year. It should remain in this range for the current year.

We take the next question from the line of Renish from ICICI Securities.

Congrats on a good set of numbers. So just two things. So first, on the credit cost side again. So this quarter we saw recovery from written-off pool at around INR 77 crore. And when I look at ECL provision, it is roughly increase of INR 23-odd crore. So ideally the writeback should be around INR 50 crore and we have recognized only INR 29 crore. So the rest is explained by what? I mean, is it a write-off or something else?

There are some regular OTS settlements, et cetera, which we do. So that has given some hit of around INR 10 crores to INR 12 crores.

No, but where does it reflect? Ideally it should reflect in ECL, right?

So it's a write-off. So it is like if you are doing settlement, so you are taking some hit while doing -- taking -- doing that settlement, so it...

Okay, so basically it's a write-off, right?

Write-off, yes.

Yes, yes. And in which segment, sir?

It is basically across Prime and Emerging on the -- or a legacy.

Okay, okay, got it. And sir, the second question is on the asset yield movement. Okay, so obviously I understand we are sort of working on changing AUM mix towards high-yielding product. But when I look back and sort of track your last 1 year performance, especially on the AUM mix side, so naturally your non-HL piece has gone at least by 5% on Y-o-Y basis across the segment, right? Whether it is Prime, Emerging or Affordable. And simultaneously, your share of Affordable has also gone up from 9.5% to 10.4%. So, but somehow despite this change over last 1 year nothing is getting reflected on the asset yield, like it is down almost 50 basis points Y-o-Y. So how one should think about asset yield movement? I mean, obviously you guys are sounding more confident on yield trajectory going ahead. But at least when I look at last one year, somehow it is not getting reflected. So just wanted to understand why is that? And what are the latest in the key indicators which is giving you that confidence that yield should improve from maybe second half onwards?

See, Renish, I think last one year, if you see, there is a change in the repo rate also, and the environment -- interest rate environment also was different, right? So our incremental yields have gone down in line with the industry trend. So hence you did not see that kind of a transition impact on the overall bouquet. But now, as we know, that there is no further drop expected on the yield perspective, it is only expected to go up. And hence the only positive impact that we see from now on is on account of mix change. So with better mix coming in, I think we should be able to deliver an improvement quarter-on-quarter basis in our yields going forward.

Got it. Just last clarification, sir. So it is right to assume that the disbursement yield in Q1 is higher than the book yield of 9.48%?

Yes, yes, right.

We take the next question from the line of Sanket Chheda from DAM Capital Advisors.

Two questions from me. One is just on the ROE thing which you have also alluded. We clocked 2.4% in this quarter and it was also showing negative and margins as well from here on. I believe it was for next year without the payment negative credit cost that we said 2.35% to 4. And this year would be 2.4% to 5. Is that right? Is that understanding right?

Yes, that's right, Sanket. This year with the benefits still continuing, we expect ROA guidance around 2.4%. Next year, this credit cost normalizing, we expect it to be around 2.3%.

Okay. And so the second question was on disbursement. You alluded that Q2 disbursement would be strong. But this is what we have -- would have logged in July, and you just said support that for next 2 months. On net-to-net basis, that is Q1 net to Q2 net, roughly how much growth you would expect?

So I think if I talk about net to net, particularly if I talk about Affordable segments, Sanket, if you're asking, the growth should be around more than -- so if you disburse INR 555 crore, to be precise, in net I think it should be 2.5 to 2.6x higher than what we did in Q1.

Wow. And overall?

Overall should be also if I talk about net, it should be near 60%, 70% -- 70% higher.

60%, 70% higher than Q1 net?

Net to net. I'm talking about net to net, yes.

Oh, so that's 9.5 to 10,000.

Hopefully we are expecting growth there because July is definitely a promising month for us, and we have seen, I would say green shoots in the month of July.

Okay, okay, okay. Right. And on rating upgrades, just wanted to check, once we are doing more Affordable, it should be taken care of on the cost of funds. Now we have received rating upgrade from CARE. Do we expect other rating agencies to follow the suit sooner, ICRA and CRISIL there?

So I think CARE is already done. ICRA is underway. I think we are expecting very soon. CARE and CRISIL-- ICRA, ICRA. And CRISIL is underway. So that work is on. So I think whatever benefit which we were expecting to get of rating upgrade, which will now translate now because when the rating got upgraded earlier, the regime was higher rate of interest scenario. But now I think it will start giving us, benefit.