Synopsis: Should investors buy, sell or hold PNB Housing after its Q2 results showing strong profit growth but moderation in loan growth?
The housing finance sector witnessed mixed investor sentiment as one of its key players reported steady profitability and margin expansion for the September quarter. Despite revenue growth and improved asset quality, traders turned cautious amid management uncertainty flagged by analysts.
PNB Housing Finance Ltd, with a market capitalisation of Rs. 24,314.57 crore, opened at Rs. 930 on Tuesday after a previous close of Rs. 928. The stock slipped to an intraday low of Rs. 886.60, marking a decline of 4.46 percent from the previous close.
Results Snapshot
Quarter-on-Quarter (QoQ) Performance: For Q2FY26, revenue increased 2.5 percent to Rs. 2,128 crore from Rs. 2,076 crore in the preceding quarter. Financing profit grew 10.9 percent to Rs. 773 crore from Rs. 697 crore, while the financing margin improved to 36 percent from 34 percent. Profit before tax rose 10.5 percent to Rs. 760 crore from Rs. 688 crore, and net profit grew 9 percent to Rs. 582 crore from Rs. 534 crore. Earnings per share also increased 8.9 percent to Rs. 22.33 from Rs. 20.51 in Q1FY26.
Year-on-Year (YoY) Performance: On an annual basis, revenue rose 13.3 percent to Rs. 2,128 crore from Rs. 1,879 crore a year ago. Financing profit surged 25.1 percent to Rs. 773 crore from Rs. 618 crore, with financing margins expanding from 33 percent to 36 percent. Profit before tax increased 25.6 percent to Rs. 760 crore from Rs. 605 crore, while net profit jumped 23.8 percent to Rs. 582 crore from Rs. 470 crore. EPS increased 23.5 percent to Rs. 22.33 compared to Rs. 18.08 in Q2FY25.
Operational Highlights
Retail loan assets grew 17 percent YoY to Rs. 79,439 crore as of September 30, 2025. The Affordable and Emerging Market segments expanded 34 percent YoY, now contributing 38 percent to retail loan assets. Disbursements during the quarter stood at Rs. 5,995 crore, up 12.2 percent YoY and 20.4 percent QoQ, led by strong traction in the affordable (up 30.7 percent YoY) and emerging markets (up 23 percent YoY) segments. Together, these segments accounted for half of the retail disbursements.
The company recovered Rs. 59 crore from the written-off pool during the quarter. Gross NPA declined to 1.04 percent as of September 2025, compared with 1.24 percent in the prior year. Return on Assets was 2.73 percent (annualised) for Q2FY26, while the Capital Adequacy Ratio remained robust at 29.80 percent, with Tier I capital at 29.21 percent.
Financial Highlights
Pre-provision operating profit rose 15.6 percent YoY to Rs. 646 crore, driven by positive operating leverage. Net Interest Income grew 14.4 percent YoY and 0.6 percent QoQ to Rs. 765 crore, while operating expenditure increased 7.6 percent YoY and 0.6 percent QoQ to Rs. 217 crore.
The company maintained prudent management, with yield at 9.95 percent, cost of borrowing at 7.69 percent, and spread at 2.26 percent during Q2FY26. The Net Interest Margin stood at 3.67 percent, compared to 3.74 percent in Q1FY26 and 3.68 percent a year ago. With recoveries from written-off accounts, credit cost improved to -53 bps, compared to -27 bps in Q1FY26 and -24 bps in Q2FY25.
Operational Performance
Disbursements grew 12.2 percent YoY and 20.4 percent QoQ to Rs. 5,995 crore in Q2FY26, led by affordable and emerging market segments which together contributed 50 percent of total retail disbursements. The company’s loan assets rose 14.8 percent YoY and 2.6 percent QoQ to Rs. 79,771 crore as on September 30, 2025.
Retail loans increased 16.9 percent YoY and 3.3 percent QoQ to Rs. 79,439 crore, with affordable loan assets surging 120.8 percent YoY to Rs. 6,531 crore, emerging market loans growing 20.8 percent YoY to Rs. 23,994 crore, and prime segment loans rising 8.3 percent YoY to Rs. 48,914 crore. The corporate loan book declined sharply by 78.3 percent YoY to Rs. 332 crore. Total AUM increased 12.3 percent YoY and 2.2 percent QoQ to Rs. 83,879 crore.
Asset Quality
Gross NPA improved to 1.04 percent as on September 30, 2025, from 1.24 percent a year earlier and 1.06 percent in June 2025. Retail GNPA stood at 1.05 percent, lower than 1.27 percent last year, while corporate GNPA remained nil since June 2025. Net NPA stood at 0.69 percent as of September 2025.
Capital Adequacy
The company maintained a healthy capital position with a CRAR (Capital to Risk Asset Ratio) of 29.80 percent as on September 30, 2025, including Tier I capital of 29.21 percent and Tier II of 0.59 percent, compared with 29.13 percent in the previous year (Tier I: 28.06 percent; Tier II: 1.07 percent).
Analyst Commentary
Brokerage firm Investec maintained a ‘Hold’ rating with a target price of Rs. 900. The brokerage noted that growth has moderated though spreads remained stable at 2.26 percent. It expects continued write-backs over the next two quarters, which may aid profitability, but also highlighted uncertainty around management succession. Overall asset quality remains strong, though the affordable housing segment warrants closer monitoring for emerging risks.
-Manan Gangwar
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