PNB Housing Finance market cap zooms past parent

On Wednesday, PNB shares slumped over 13% in intraday trade to hit over a two-year low of Rs74.30 after the bank reported a Rs13,417 crore loss for the March 2018 period. Photo: Mint

On Wednesday, PNB shares slumped over 13% in intraday trade to hit over a two-year low of Rs74.30 after the bank reported a Rs13,417 crore loss for the March 2018 period. Photo: Mint

Mumbai: The state-run lender Punjab National Bank (PNB) is trading at a discount to its housing finance subsidiary PNB Housing Finance Ltd for the first time after the market capitalisation was eroded on back of huge losses in the March quarter during which $2 billion fraud was discovered.

PNB erased nearly half of its value since 14 February after the bank disclosed that it detected a scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure overseas credit from other Indian lenders.

Currently, the market cap of PNB Housing stands at Rs21,122.08 crore, while PNB has Rs20,552.47 crore market cap. As of March 2018, PNB holds 32.96% stake in PNB Housing.

As a thumb rule, the parent company market value should be more than its subsidiary, considering parent companies will have its own core business in addition to the subsidiary units.

However, there are some exceptions where units have more market value than their parent companies. For instance, Maruti Suzuki India Ltd, HDFC Bank Ltd and Bajaj Finance Ltd have more market cap than their parent firms Suzuki Motors Ltd, Housing Development Corp Ltd and Bajaj Finserv Ltd, respectively.

On Wednesday, PNB shares slumped over 13% in intraday trade to hit over a two-year low of Rs74.30 after the bank on Tuesday reported a Rs13,417 crore loss for the January-March period, the largest quarterly loss posted by an Indian lender. So far this year, the stock declined 56%.

At 11.22am, PNB stock was trading 11.98% lower at Rs75.70, while PNB Housing Finance shares fell 1.33% to Rs1265.10. On Tuesday, PNB shares closed 3.80% lower at Rs86 on BSE, eroding market valuation by Rs938.07 crore to Rs23,740.93 crore.

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Many brokerages have downgraded the scrip and reduced its target price since the results were out. Credit Suisse has reduced its rating to “neutral” from “outperform” while Nomura has cut its rating to “reduce” versus “neutral”. Motilal Oswal has cut its rating to “neutral” from “buy” earlier.

Of the analysts covering the PNB stock, 11 have a “buy” rating, 15 have a “hold” rating, while 11 have a “sell” rating, shows Bloomberg data.

“The ramifications of the big fraud on the bank, both direct and indirect, has been far higher than initially anticipated. The bank has consumed a lot more capital and there would be further impact on Tier-1 ratio in the ensuing quarters till the balance sheet is stabilized”, said Kotak Institutional equities in a note to its investors.

“It is quite surprising to note that the domestic deposits did not see any impact post this crisis as it grew sequentially. The drop in Tier-1 ratio to <6% would result in a steep contraction in book value per share, negating our previous argument for a positive outlook at this time of the cycle. We are not factoring this quantum, but we have made adjustments to our target price as this is near certainty”, Kotak report added. The brokerage firm has maintained its add rating but lowered its target price to Rs 90 from Rs 150 a share earlier.

PNB Housing Finance, which listed to exchanges in November 2016, have surged nearly 46% from its issue price of Rs863 a share. On 3 May, the firm reported earnings with 44% year on year surge in net profit to Rs219 crore. Net interest income grew 36% to Rs452 crore.

Of the analysts covering PNB Housing, 12 have a “buy” rating, 3 have a “hold” rating, while 3 have a “sell” rating, shows Bloomberg data.

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