Shares of PNB Housing Finance were locked in upper circuit for the sixth straight day, up 5 per cent at Rs 880.65 on the BSE on Monday, with only buyers seen on the counter. The stock of housing finance company has zoomed 101 per cent post its announcement that its board approved a capital raise of upto Rs 4,000 crore, led by entities affiliated to Carlyle Group.
The stock hit a three-year high and was trading at its highest level since June 2017. A combined 341,000 shares were changing hands and there were pending buy orders for 415,000 shares on the NSE and BSE at 11:09 am.
“The key objective of raising capital is to augment capital adequacy, reduce gearing and accelerate growth with a focus on retail housing including self-employed and affordable housing loans such as the Unnati segment, the company added. Assuming full capital infusion (including warrants) and no other change to the March 31, 2021 financials, the capital adequacy ratio of the company as of March 31, 2021, would increase from 18.7 per cent to over 28 per cent and gearing as of March 31, 2021, will decline from 6.7x to less than 5x,” PNB Housing Finance had said in a press release dated May 31, 2021.
Along with Carlyle Group, Aditya Puri, former managing director of HDFC Bank, will also infuse capital into PNB Housing Finance through family investment firm Salisbury Investments. He will be Carlyle’s nominee director in due course.
The announced large equity infusion should significantly improve the confidence of fixed income and equity markets and bring PNB Housing Finance back on the growth path. We believe this capital infusion could materially accelerate the business turnaround, analysts at Morgan Stanley said in an update.
“We had previously assumed Rs 1,800 crore of equity issuance in FY22. Our profit after tax (PAT) forecasts go up as the free funds benefit from the higher issuance more than offset the royalty payments to PNB that will get effective as its stake falls below 30 per cent. Owing to the share count dilution of up to 2 per cent by FY23, our EPS and BVPS forecasts for F22-24 go down by 6-14 per cent and up to 6 per cent respectively,” analysts at the foreign brokerage said in event update.
However, this impact is without assuming the likely acceleration in loan growth and decline in cost of funds, that should follow with the significant decline in leverage to <5x. Also, the increased certainty of the business turnaround with this confidence capital coming in should driven a meaningful valuation re-rating from beaten down levels, the brokerage firm said.