Punjab National Bank (Q1 FY13)

India Infoline News Service | Mumbai |

Asset quality issues to act as an overhang on stock

CMP Rs716, Target Rs830, Upside 15.9% 
  • Sequentially flat advances; deposit profile improves 

  • NIM improvement came as surprise; likely to weaken in coming quarters

  • Core fee income growth sluggish; C/I ratio reverts to above 40%

  • Deterioration in asset quality continues; outlook remains perturbing 

  • Asset quality issues to act as an overhang on stock 

Result table
(Rs m) Q1 FY13 Q4 FY12 % qoq Q1 FY12 % yoy
Total Interest Income 105,450 96,798 8.9 83,152 26.8
Interest expended (68,498) (63,698) 7.5 (52,000) 31.7
Net Interest Income 36,951 33,100 11.6 31,153 18.6
Other income 11,660 12,760 (8.6) 10,837 7.6
Total Income 48,611 45,859 6.0 41,990 15.8
Operating expenses (20,203) (16,498) 22.5 (17,250) 17.1
Provisions (10,325) (10,273) 0.5 (8,935) 15.6
PBT 18,084 19,089 (5.3) 15,804 14.4
Tax (5,627) (4,848) 16.1 (4,753) 18.4
Reported PAT 12,457 14,241 (12.5) 11,051 12.7
EPS 146.9 167.9 (12.5) 139.5 5.3

Key  Ratios Q1 FY13 Q4 FY12 chg qoq Q1 FY12 chg yoy
NIM (%) 3.6 3.5 0.1 3.8 (0.2)
Yield on advances (%) 11.5 11.4 0.1 11.4 0.1
Yield on Inv (%) 7.9 7.6 0.3 7.7 0.3
Yield on Funds (%) 9.1 8.7 0.5 8.7 0.4
Cost of Deposits (%) 7.0 6.8 0.2 6.3 0.7
Cost of Funds (%) 5.9 5.7 0.2 5.4 0.5
CASA (%) 34.6 35.3 (0.8) 37.4 (2.9)
C/D (x) 0.76 0.77 (0.01) 0.75 0.01
Non-int. income (%) 24.0 27.8 (3.8) 25.8 (1.8)
Cost to Income (%) 41.6 36.0 5.6 41.1 0.5
RoE (%) 18.0 22.8 (4.8) 20.9 (2.9)
RoA (%) 1.1 1.3 (0.2) 1.2 (0.1)
CAR (%) 12.6 12.6 (0.1) 12.4 0.2
Gross NPA (%) 3.3 2.9 0.4 2.0 1.3
Net NPA (%) 1.7 1.5 0.2 0.9 0.8
Source: Company, India Infoline Research

Sequentially flat advances; deposit profile improves 

As per our expectation, PNB’s loan book was flat qoq and represented a growth of 21% yoy. While domestic advances marginally declined qoq, international advances witnessed strong expansion of 20%. Within domestic credit, large manufacturing, MSME manufacturing and agriculture segments witnessed sequential contraction of 3-4% qoq. During FY13, PNB intends to focus more on consolidation than balance sheet expansion and therefore loan growth is likely to be near that of the system. Aided by continued robust traction in retail TDs (6% qoq/33% yoy), the overall deposits growth stood healthy at 19% yoy. Bank shed some bulk deposits with its share declining to 22%. Though savings growth was decent at 13% yoy, the current account balances declined sharply on qoq basis as witnessed by many other banks. CASA ratio came-off by 70bps qoq to 34.6%.


NIM improvement came as surprise; likely to weaken in coming quarters

NIM expansion of 10bps qoq to 3.6% came as a positive surprise as we expected a similar contraction. While the cost of deposits increased as expected, higher loan yield (despite substantial slippages and 25bps base rate cut in April) and material improvement in investment yield pushed margin higher. NIM outlook remains weak in the medium term as advances are likely to re-price faster than deposits in rate cut cycle. Against 3.8% earned in FY12, the bank has guided for NIM of 3.5% for FY13.   


Core fee income growth sluggish; C/I ratio reverts to above 40%

Fee income growth excluding forex (up 62% yoy) was weak at 9% yoy. Sequentially, it was higher by 4% driven by seasonality in the booking of processing fees (up 100% qoq/6% yoy). Trading profit was substantially lower at Rs880mn v/s Rs1.6bn in the previous quarter. Opex jumped qoq by 23% on higher employee benefits provisioning. From Q1 FY13, the bank has started providing for pension and gratuity liability based on actuarial valuation (earlier it was done towards the end of the year with provisioning being adjusted accordingly in Q4). Further actuarial assumptions have been updated with wage increases likely from November. C/I ratio therefore reverted to a more normalized level of 41% from 36% in Q4 FY12. 


Deterioration in asset quality continues; outlook remains perturbing 

Against expectation of Rs15-16bn, PNB reported significantly higher slippages at Rs27bn representing an annualized delinquency ratio of near 4%. There was no lumpiness in slippages (Top 7 accounts contributed Rs10bn) and were largely diversified across sectors. GNPL ratio deteriorated significantly to 3.3%. PNB indicated that elevated slippages could continue in coming quarters due to weak economic conditions. Restructuring during the quarter was modest at Rs12bn in comparison to previous three quarters - Rs86bn in Q4 FY12, Rs19bn in Q3 FY12 and Rs41bn in Q2 FY12. The outstanding restructured book stood at Rs255bn, a substantial 8.7% of advances. Credit cost remained high at 1.2% in response to substantial slippages while provisioning for restructured assets was significantly lower. PCR was stable at 63% and Net NPL ratio increased to 1.7%. With slippages outlook perturbing and a low PCR, credit cost is likely to remain near 1% during the remainder of FY13. 


Asset quality issues to act as

BSE 173.55 0.70 (0.40%)
NSE 173.70 0.75 (0.43%)

***Note: This is a NSE Chart

 

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