Punjab National Bank (Q1 FY14)

India Infoline News Service | Mumbai |

Downgrade earnings/BV estimates substantially; cut price target significantly

CMP Rs596, Target Rs583, Downside 2.2% 
  • Anemic loan and deposit growth continues; outlook remains poor
  • NIM was resilient; but likely to trend lower form here
  • Core fee growth remains poor; C/I ratio deteriorates marginally
  • Substantial slippages drive a material deterioration in asset quality; outlook remains poor
  • Downgrade earnings/BV estimates substantially; cut price target significantly 
Result table
(Rs mn) Q1 FY14 Q4 FY13 % qoq Q1 FY13 % yoy
Total Interest Income 104,045 103,788 0.2 105,450 (1.3)
Interest expended (64,970) (66,001) (1.6) (68,498) (5.2)
Net Interest Income 39,075 37,787 3.4 36,951 5.7
Other income 13,421 11,740 14.3 11,660 15.1
Total Income 52,496 49,527 6.0 48,611 8.0
Operating expenses (22,758) (21,010) 8.3 (20,203) 12.6
Provisions (10,665) (14,777) (27.8) (10,325) 3.3
PBT 19,073 13,740 38.8 18,084 5.5
Tax (6,320) (2,432) 159.9 (5,627) 12.3
Reported PAT 12,753 11,308 12.8 12,457 2.4

(Rs mn) Q1 FY14 Q4 FY13 chg qoq Q1 FY13 chg yoy
NIM (%) 3.5 3.5 0.0 3.6 (0.1)
Yield on Advances (%) 10.5 10.7 (0.2) 11.5 (1.0)
Cost of Deposits (%) 6.4 6.6 (0.2) 7.0 (0.6)
CASA (%) 37.8 39.2 (1.4) 34.6 3.2
C/D (x) 0.77 0.79 (0.02) 0.76 0.00
Non-interest income (%) 25.6 23.7 1.9 24.0 1.6
Cost to Income (%) 43.4 42.4 0.9 41.6 1.8
BV (Rs) 920.2 915.5 4.7 814.1 106.1
RoE (%) 15.7 14.0 1.7 18.0 (2.4)
RoA (%) 1.0 0.9 0.1 1.1 (0.0)
CAR (%) 12.4 12.7 (0.3) 12.6 (0.1)
Gross NPA (%) 4.8 4.3 0.6 3.3 1.5
Net NPA (%) 3.0 2.4 0.6 1.7 1.3
Source: Company, India Infoline Research

Anemic loan and deposit growth continues; outlook remains poor 
PNB’s loan book growth at 4% yoy/-1% qoq was materially behind expectation; decelerating substantially for the third consecutive quarter (stood at 20% yoy in Q2 FY13). Apart from self-imposed caution due to increasingly challenging macro environment, bank’s feeble presence in the relatively resilient retail segment (10% of total advances) has been behind the substantial weakening of growth. In our view, PNB would continue to grow at slow pace till the economic/corporate investment activity improves materially. Deposits grew in-line with advances at 3% yoy but the mix has changed considerably over the past 12 months. Bulk deposits have declined by 58% yoy and formed a minor 8% of total deposits; retail TDs and savings balance growth has been impressive at 27% and 15% respectively. Yoy CASA contribution in deposits has increased by 300bps to 38%.

NIM was resilient than expected; but likely to trend lower form here
NIM was stable sequentially at 3.5% against our expectation of 15bps decline. This was despite probable material interest income reversal on substantial slippages and restructuring that drove 20bps qoq contraction in average lending yield. Change in mix led to offsetting 20bps sequential decline in cost of deposits. NIM is likely to trend down from here as we see downward pressure persisting on lending rates and cost of deposits stabilizing. Bank also expects NIM to weaken from current level and has guided a range of 3.25-3.5% for FY14.

Core fee growth remains poor; C/I ratio deteriorates marginally
Fee income growth remained in the negative territory for the fourth consecutive quarter. Growth was negligible in key streams of processing fees and LC/LG income. Trading profit was substantial for the second consecutive quarter due to declining rate environment; but it is likely to be poor in the current quarter as rates have moved up materially. With opex growth higher than revenue growth at 13% yoy, cost/income ratio deteriorated marginally.

Substantial slippages drive a material deterioration in asset quality; outlook remains poor
PNB’s slippages came in at Rs36bn (our estimated range was Rs20-23bn) representing an annualized delinquency ratio of 4.5%. One large gems & jewelry account (Winsome Jewelers) solely contributed Rs16.5bn to delinquencies. Excluding this, slippages were granular and diversified across sectors. Bank wrote-off ~Rs8bn (to the extent of cash recovery) worth of loans while recoveries/upgradations comprised Rs11-12bn. GNPL level increased by 50bps qoq to 4.8%. With provisioning against fresh slippages being at lower rates (but as per regulatory requirement), PCR fell by 400bps qoq to 55%. Fresh restructuring during the quarter was also substantial at Rs27.7bn. In our view, the outlook for delinquencies, restructuring and credit cost remains worrisome. Bank reported annualized RoA of 1% aided by stable NIM and high trading profit.

Downgrade earnings/BV estimates substantially; cut price target significantly  
PNB’s profit would have been significantly lower but for huge trading gains and lower provisioning. Going ahead, RoA is likely to decline materially from current level on account of NIM correction, lower trading profits and high credit cost. We see PNB delivering average 0.8% RoA over FY13-15 calling for a lower valuation multiple amid increasingly challenging macro. We believe that stock price has justifiably adjusted lower in the past four months and therefore retain Market Performer rating with 9-month target price of Rs583.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Total operating income 176,170 190,724 197,518 220,764
yoy growth (%) 14.2 8.3 3.6 11.8
Operating profit (pre-prov) 106,143 109,074 105,661 116,047
Net profit 48,842 47,477 42,200 47,133
yoy growth (%) 10.2 (2.8) (11.1) 11.7





EPS (Rs) 144.0 134.3 119.4 133.3
Adj.BVPS (Rs) 646.1 679.3 645.4 728.1
P/E (x) 4.1 4.4 4.9
BSE 174.90 2.05 (1.19%)
NSE 174.85 1.90 (1.10%)

***Note: This is a NSE Chart

 

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