UBS initiates 'Buy' call on PNB Housing Finance, sees 17% upside on strong AUM growth and loan book shift

UBS has initiated coverage on PNB Housing Finance with a ‘Buy’ rating and a target price of Rs 1,300, implying a 17% upside from the previous day’s closing price of Rs 1,110.

The brokerage expects a mid-teen AUM compound annual growth rate (CAGR), driven by product diversification and deeper penetration into emerging and affordable housing segments. UBS projects a 16% AUM CAGR over FY25–27, supported by new business verticals. The share of non-prime loans is expected to rise from 25% in FY25 to 40% by FY27.

UBS also noted that PNB Housing trades at a discount to peers despite strong loan growth and improving return on equity (RoE). The company's expanding distribution in mid-market segments is seen as another positive that could support incremental loan growth.

The brokerage identified three key drivers of future growth. First, affordable and emerging segments are expected to account for 38% of the loan book by FY27, contributing 75% of incremental growth. Second, prime loans, while declining in share, are expected to contribute 25% to loan growth. Third, the company’s entry into developer financing is likely to have a limited impact in the near term but could offer meaningful upside from FY28 onwards.

To enable this expansion, PNB Housing plans to increase its branch network from 356 to 500 by FY27.

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In Thursday’s trade, the stock rose 2.5% to close at Rs 1,110.6. It has gained 30% over the past three months and is up 84% in the last two years.

In Q4 FY25, the company’s net interest income rose 19.2% year-on-year, while net profit grew 28% to Rs 567.1 crore.

Asset quality also improved sequentially. Gross NPA declined to 1.08% from 1.19% in the previous quarter, while net NPA improved to 0.69% from 0.8%.

On the technical front, the stock’s Relative Strength Index (RSI) stands at 62.2, nearing overbought territory. It is trading above its 20-day, 50-day, 100-day, and 200-day simple moving averages, indicating strong underlying momentum.

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