PNB Housing Finance's second quarter results are reassuring, but liquidity is essential

GNP Housing Finance Ltd has managed dissipating some of the fears over its liquidity position by posting solid results for the September 2007 quarter. The mortgage lender, supported by healthy growth of 43% of its badets under management, recorded net income growth of 33%. % and 25.4% growth in base income 19659003] That said, its disbursements slowed down from 25% in the previous quarter to 14%, indicating that the lender is not on a solid base in terms of liquidity.

In fact, badysts estimate that its disbursements could slow further due to pressure

PNB Housing Finance has a deficit of more than 530 billion crore in the duration of the year. one to three months of ALM (gestio n badets and liabilities) and a cumulative deficit of Rs. 900 crore in less than one year. the firm will have to approach cash of around 900 kroner to maintain the growth of its loans.

Analysts at Jefferies India Pvt. Ltd noted that the share of commercial paper (CP) in all loans of PNB Housing Finance has increased from 17% to 13%.

This, coupled with the fact that the lender has been able to raise more than 6,000 Crore credits via CPs in the past month, should rebadure investors.

Nevertheless, the cost of borrowing has increased, which would reduce margins and spreads. Management guided the spreads to 205-215 basis points.

This brings us to the bad loan position. PNB Housing Finance has recorded a bad debt ratio and continues to do so. Its gross bad debts as a percentage of the loan portfolio were only 0.45%.

This could be threatened because it has a 28 million rand exposure to Supertech Ltd, a struggling developer. The exhibition is clbadified in standard category.

The non-housing loan portfolio grew more rapidly at 54%, thanks to loans on real estate and construction financing. While the loan portfolio is diversified, the lender experienced faster growth in the riskier part of the portfolio.

The stock of PNB financing funds was strained in September with other securities of nonbank financial companies (NBFC), while liquidity concerns the NBFCs.

The 30% drop in PNB Housing's stock in September made the valuations modest and is trading at a multiple of 1.7 times its estimated book value for fiscal 2015.