Value investing, a term coined by Benjamin Graham, is a widely used concept in the global investment landscape. The concept often focuses on buying stocks and trading at low valuations, making such stocks attractive to investors looking for growth at a reasonable price, with a margin of safety.
However, they require some catalysts, such as earnings growth, fundamental triggers, and management change, to bridge the gap in valuation with peers. However, low valuations do not always mean a bargain, as some stocks may trade at a discount due to weak financials and sectoral challenges, among other reasons. This makes it essential for investors to know the reason behind low valuations before deciding.
Similarly, we have selected two stocks trading below their industry valuation, preferably price-to-equity (P/E). Let’s take a look.
PNB Housing Loans is the third-largest housing finance company by assets, with assets under management (AUM) of ₹712 billion (as of FY24). Its loan book comprised home loans (70%), loans against property (23%), non-residential premises loans (4%), and wholesale loans (3%).
The company’s portfolio includes retail housing, non-housing loans for prime customers, emerging markets, and affordable housing loans. PNB Housing loan assets are well diversified, with the North region contributing 33%, the West (35%), and the South (32%).
The company’s AUM in FY24 contributed 97% of the total AUM, while the corporate segment contributed 3%. Notably, despite strong loan growth, its AUM over the last few years has declined from a high of ₹833 billion in FY20 to ₹712 billion in FY24.
However, AUM grew by 7% in FY24, led by a surge in disbursements, 99% of which came from the retail segment. The company also has a license to accept deposits, and its deposits remained stable at ₹178 billion in FY24.
With relatively stable deposits, even as AUM has not grown, the company’s net interest income (NII) has grown 9% over the past four years to ₹25 billion. This was driven by higher net interest margins (NIM) as interest rates rose after FY22, with its NIM rising from 2.8% in FY22 to 3.7% in FY24.
Notably, PNB Housing saw a rise in non-performing assets (NPAs) during FY20-22, the pandemic impact period, which restrained AUM growth. Its gross NPA rose from 2.9% in FY20 to 8.1% in FY22, while net NPA rose from 1.9% in FY20 to 5.1%.
The bulk of the reduction in NPAs since was due to the sale of bad loans to asset reconstruction companies and write-offs. The company is reducing its dependence on the corporate book, with the retail book now accounting for 97% of its portfolio.
Nevertheless, FY24 has seen a significant improvement in key metrics, as the bad loan issue has become a thing of the past. This can be seen from the improvement in asset quality, with gross NPA and net NPA coming down to 1.5% and 0.9% in FY24.
With a rise in NIM, growth in AUM, and lower credit cost due to a reduction in NPAs, PNB Housing’s profit grew 44% y-o-y to ₹15 billion in FY24. As a result, its return on assets (RoA) – a key profitability metric – also improved to 2.2% from 1.6% last year.
In the 9 months of FY25, PNB Housing’s NIM grew 7% from last year to ₹20 billion, led by NII of 3.7%. On the other hand, net profit rose 30% to ₹13.8 billion. Asset quality improved further, with GNPA and NNPA standing at 1.2% and 0.8%, respectively.
Looking ahead, the company has launched a new vertical, ‘Emerging Markets,’ to cater to the needs of tier 2 and 3 cities. It currently has 50 branches in 12 states, which could generate more profit. The management expects this business segment to contribute around 40-42% of the incremental business.
The company has also entered the affordable housing business under the brand Roshni, which saw an uptick in disbursement. Within 15 months of inception, Roshni achieved a loan book of ₹17.9 billion, making it the fastest-growing player in the segment.
The company will focus on maintaining asset quality, with retail books forming a large part of its portfolio. Future recoveries and collections will also aid profit growth.
PNB Housing is trading at a price-to-equity (P/E) of 13, which is lower than the housing finance sector’s P/E of 32 and the 10-year median P/E of 14.5. Its price-to-book (P/B) valuation is 1.6, which is also lower than the sectoral P/B of 3.6, while in line with the 10-year average of 1.5.
PNB Housing Share Price
MOFSL is the ultimate holding company of the diversified financial services Motilal Oswal group. Since 1986, the company has experienced various capital market cycles and has a stronghold in the capital market space.
The group operates in multiple business segments, including broking, asset management, private equity, wealth management, investment banking and housing finance.
47% of MOFSL revenue comes from the capital market segment, 27% from asset and wealth management, 8% from housing finance, and 19% from treasury investments. As of FY24, it had a total AUM of ₹3.8 trillion.
62% of the capital markets segment’s revenue comes from broking, while 11% comes from product distribution. Investment banking contributes 3%, and net interest income from margin trading facilities brings in 20%.
The broker market share in futures and options (F&O) grew to 8.7% in FY24 from 2.8% in FY20. Moreover, it has also gained market share in the cash segment, increasing to 8.2% from 5.7% in FY20.
Apart from brokerage, it also distributes financial products, including mutual funds, wealth management (WM), insurance, financial planning and credit solutions. Distribution AUM has grown at a robust 38% CAGR (during FY20-24) to ₹270 billion in FY24. New client acquisitions and mark-to-market gains drove this growth.
MOFSL wealth management segment also witnessed robust growth driven by industry tailwinds and strong capital market performance. The segment’s AUM stood at ₹1.24 trillion in FY24, up 72% over the previous year.
AUM growth is driven by hiring relationship managers (RMs), improved productivity among RMs, deeper engagement with existing clients, and mark-to-market gains on investments.
The last, Motilal Oswal Asset Management Company (MOAMC), has also seen strong growth, driven by a sharp rise in mutual fund AUM and record-high systematic investment plan (SIP) inflows. MOAMC’s AUM is ₹718 billion, up 57% from last year.
MOFSL has shown strong financial performance over the last four years. In FY24, its revenue and operating net profit grew at a CAGR of 32% to ₹71 billion and ₹15 billion, respectively.
The company’s financial performance remained robust in 9MFY25 as well. Revenue rose 41% from last year to ₹38.5 billion, while operating profit surged 44% to ₹14.9 billion.
The strong performance was driven by 41% growth in wealth management, 36% in the capital market, and 48% in AMC and private-wealth management. It expects its operating PAT to grow at a 15-20% CAGR in the coming years.
MOFSL is trading at a P/E of 11.2, lower than the 10-year average P/E of 21 and the capital markets sector P/E of 20. MOFSL Valuations have cooled down recently from the 22x, as the broader market corrected and factors in near-term earnings slowed down.
However, the company operates in a cyclical business with strict regulatory oversight. Hence, any adverse regulation and prolonged bearish equity markets could impact its performance.
Motilal Oswal Financial Services Share Price
Conclusion
Both companies are trading at lower valuations, not only in terms of their historical valuations but also in terms of the industry in which they operate. In PNB Housing, this discount reflects stagnant AUM growth and high NPAs. However, the company has rebounded and reduced its exposure to corporate credit, which makes it better placed. New segments, including affordable housing, can also boost its NIM.
On the other hand, MOFSL is riding on industry tailwinds. However, the stock has corrected around 40% in 2025 to date, factoring in near-term earnings slowdown due to the downturn in equity markets. However, its earnings growth has been strong, which could help bridge the valuation gap.
Disclaimer:
Note: We have relied on data from and throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
About the Author: Madhvendra has been deeply immersed in the equity markets for over seven years, combining his passion for investing with his expertise in financial writing. With a knack for simplifying complex concepts, he enjoys sharing his honest perspectives on startups, listed Indian companies, and macroeconomic trends.
A dedicated reader and storyteller, Madhvendra thrives on uncovering insights that inspire his audience to deepen their understanding of the financial world.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article.
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