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00:00 The company in focus this morning is PNB Housing Finance.
00:04 Morgan Stanley Note recently saw 40% upside on the stock.
00:09 The Q3 numbers have also been fairly decent.
00:12 We're trying to understand what makes this housing finance company tick
00:16 and the focus that they have kept on the HFC business,
00:20 bearing down the corporate business, etc.
00:22 Girish Kowsky, the MD and CEO at PNB Housing Finance is joining us now
00:28 for more on the story.
00:31 Mr. Kowsky, very good morning.
00:32 Thank you for speaking with us here at NDTV Profit.
00:35 Let's start by talking about your Q3 numbers and just,
00:38 you know, as a takeoff point for our conversation.
00:41 Was it a tough quarter?
00:43 We've seen that in the financial space,
00:45 your net interest income was down about 19% year on year.
00:50 Operating profits were also, you know, squeezed about 20%.
00:54 Provisions were up.
00:56 How would you look at that one quarter, quarter three?
01:00 Is it an aberration or are you seeing a climate
01:03 which is slightly difficult right now?
01:05 Good morning.
01:07 So I think quarter three was soft because there were a lot of exceptional items.
01:13 I think there were a lot of one offs in comparison.
01:16 I think if you look at PNB Housing today,
01:18 we are through a transformational journey and this is in two phases.
01:22 So phase one is now over.
01:24 Phase one had to do a lot with raising capital,
01:27 getting the corporate book right in terms of rundown
01:30 and getting the asset quality right.
01:33 On corporate, you know, we were at about,
01:36 let's say about two years back, we were at about 35% of NPA
01:40 and now it is less than 3%.
01:42 So we have just one account.
01:44 We are expecting resolution in this quarter.
01:46 So corporate is more or less sorted.
01:48 We ran down the book from 18,000 crores
01:50 to about 2,200 crores as of last quarter end.
01:54 Now, and also we did a lot of work on growth
01:58 because a year back, if you see the growth,
02:00 it used to be negative or flattish on the retail side.
02:05 Our first nine months, we have progressed from zero
02:09 to about 13.5% in terms of book growth and disburdened growth of 22%.
02:14 So quarter three was soft because of, you know, exceptional items.
02:19 Otherwise, now we are ready for phase two.
02:22 Phase two, our focus is going to be in terms of growth and margins.
02:28 The reason why I'm saying growth is that
02:32 in spite of all those challenges in last one year,
02:34 we've showed a growth of 13.5% on retail.
02:36 Since corporate, we have stopped doing business temporarily.
02:40 The guidance for coming year on book growth is going to be 70
02:44 and disbursement growth is going to be 24% plus.
02:47 So in last, by this March, we will be at 300 branches.
02:52 So if you see in last 17 months, we would have opened 200 branches,
02:58 taking it to 300, that means from 100 to 300.
03:04 So from coming financially onwards, we would have 300 branches.
03:08 And out of 300 branches, 200 branches would be focusing
03:11 on lower end of prime and affordable business,
03:15 which means these are high yield businesses.
03:18 So going forward, growth and margins is the focus.
03:21 Okay, I'll come to you on details on margin and growth guidance,
03:25 but just a word on your corporate book.
03:26 And that's impressive the extent to which that corporate book is run down.
03:29 You're saying there's one borrower left.
03:32 You're going to close that this quarter.
03:34 Can you give us an idea both on timelines
03:36 and the amount that you hope to recover?
03:39 No, I mentioned there's only one NPA account left.
03:44 The book is 2,200 crores, which is down from 18,000 crores.
03:48 So that one account is small account, it's about 80 odd crores.
03:52 So that we're expecting resolution this quarter.
03:54 Okay, so it's not going to make a huge difference here or there.
03:57 It's about 80 odd crores.
03:58 And then, you've cleaned up that book completely.
04:02 Talk to us about the focus as well,
04:05 because your non-housing portion of your book is relatively smaller.
04:11 The focus is on the housing finance side.
04:13 Is that where your focus continues?
04:15 And how do you aim to grow it?
04:16 Our focus will be on both home and non-home,
04:20 but both under retail.
04:23 Largely, our focus will be on retail.
04:25 So as we speak, now we are close to 97% of retail book at a portfolio level.
04:33 And incrementally, we're doing only retail now.
04:36 So our focus is going to be on retail.
04:38 Within retail, we are operating in two segments now.
04:41 One is prime and the second one is affordable.
04:43 We are launching a new segment from April that is emerging markets.
04:48 So out of the 300 branches, 160 branches would focus on affordable.
04:53 We are seeing very good traction.
04:54 We were one of the fastest to build an AM of 1000 crores.
04:59 So we see a lot of traction there.
05:00 So we will have 160 branches focusing on affordable housing.
05:05 And the yields, what we're expecting for coming year
05:08 is going to be about 12.5% from affordable segment.
05:12 And 50 branches would be focusing on emerging markets.
05:15 So here, the yield should be close to about 10%.
05:18 And the balance 90 branches will be focusing on prime business.
05:22 I want to understand your loan growth trajectory, Mr. Kowsky.
05:27 So your loan growth in FY25 was about 15%.
05:31 The following year, FY25 is expected 17%.
05:36 Do you aim to bump this up?
05:39 What is your outlook for your loan growth rate?
05:42 I think for next two, three years, we should grow the book by 17%.
05:45 So this year, it's going to be between 14 to 15%.
05:50 I'm talking about retail, since we are not doing corporate now.
05:54 So on retail, the growth this year is going to be between 14 to 15%.
05:57 And from coming year, for next two to three years time,
06:01 we will focus to grow at 17%.
06:03 In your individual housing book, which is about 17, 2% of your loan mix,
06:10 how much of it is affordable?
06:12 And I'm just trying to get a sense of how much of it is now growing
06:16 because of this entire real estate housing boom that we're seeing.
06:20 Are you seeing benefits of that?
06:23 And going forward, do you see benefits of that sustaining?
06:25 Oh, definitely.
06:27 Yes, demand is quite robust.
06:29 Real estate is doing well since last three to four years time.
06:33 And this cycle would last for another at least five to six years.
06:37 So we see a lot of demand.
06:38 Affordability has improved drastically.
06:41 And also because we had changed our focus,
06:45 and we had started affordable vertical last year,
06:49 and we're going to start emerging vertical in the coming year.
06:52 So we see a lot of scope, especially on affordable and emerging,
06:56 in terms of profitability.
06:57 And the prime pool also would grow.
07:00 And overall, the growth is going to be about 17%.
07:03 Geographically, the lion's share continues to be from Maharashtra,
07:07 and you think will continue to be from Maharashtra?
07:10 No, we are a national player.
07:12 So we are operating in about 22 states.
07:15 Our focus is on all the zones, south, north, and west,
07:20 to a small extent in east.
07:23 I think that focus would continue.
07:25 However, within the segments,
07:26 we may operate to be slightly skewed towards one of the zones.
07:29 That you are.
07:31 I'm just wondering if it's going to continue in that trajectory,
07:34 or you're working on new geographies and locations as well.
07:38 So we are getting deeper into each of these geographies.
07:41 I think in terms of skewness,
07:44 it will be slightly skewed towards south.
07:46 Maybe 38, 39% incrementally,
07:49 and the rest will be between west and north.
07:51 So in terms of balance,
07:53 it will be almost all the three zones
07:55 would contribute almost similar numbers.
07:57 So more focus on south.
07:59 Just on your margins,
08:00 I want to understand that you had a credit upgrade recently, Mr. Kowski.
08:04 Has that helped you in terms of cost of funds,
08:06 and will that flow into your margins?
08:07 Definitely, yes, it has helped.
08:10 And we also see that the interest rates have now peaked out.
08:13 And in about two quarters from now,
08:14 the rates would start dropping.
08:16 So we will also get some benefit on the cost of borrowing
08:19 because of the rating update.
08:21 So definitely, we'll see some benefit.
08:23 And this apart, our focus is to increase margins.
08:26 And directionally, strategically,
08:28 now two-thirds of our branches would be focusing on
08:31 originating business at a better yield, a higher yield.
08:34 So this would definitely,
08:36 maybe after two, three quarters time,
08:39 the margin should improve.
08:41 Where is that higher yield coming from?
08:45 And what would be your margin guidance
08:47 when you're saying it will improve in two to three quarters?
08:49 Can you give us a sense,
08:50 a direction and a ballpark number on that?
08:52 So as of now,
08:54 no margin is about three and a half percent.
08:57 So we'll be able to maintain that for next two, three quarters.
09:00 After that, I think with every passing quarter,
09:03 the margins would improve as the mix in the book keeps changing.
09:07 There is no guidance on future margin,
09:08 but definitely I think after two, three quarters,
09:10 margins should improve because most of the origination
09:14 would be at a higher yield.
09:15 So two to three quarters later, you see an improvement.
09:18 You can't really give us a number to where you expect that to go.
09:21 But thank you so much, Mr. Girish Kaur Ski
09:24 for taking out the time and speaking to us today.
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