Punjab National Bank (Q1 FY15)

India Infoline News Service | Mumbai |

PNB’s loan growth accelerated marginally to 14% yoy driven by sustained strong growth in Agri (33% yoy), Retail (24% yoy) and SME (37% yoy) segments.

CMP Rs923, Target Rs892, Downside 3.4% 
  • Loan growth marginally improves to 14% yoy; Retail, SME and Agri remain key drivers 

  • Domestic CASA ratio falls on seasonal factors; sustained robust traction in non-bulk TDs 

  • NIM bounced back as expected; outlook is stable 

  • Core fee growth disappoints; C/I ratio deteriorates significantly

  • Influx of impaired assets was much lower qoq; significant write-offs contain increase in Gross NPLs

  • Fairly priced, stock to underperform in the near term; Rate Reduce 

Result table
(Rs mn) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Total Interest Income 115,887 111,013 4.4 104,045 11.4
Interest expended (72,090) (70,995) 1.5 (64,970) 11.0
Net Interest Income 43,797 40,018 9.4 39,075 12.1
Other income 12,364 13,969 (11.5) 13,421 (7.9)
Total Income 56,161 53,987 4.0 52,496 7.0
Operating expenses (24,908) (22,253) 11.9 (22,758) 9.5
Provisions (9,276) (21,387) (56.6) (10,665) (13.0)
PBT 21,977 10,347 112.4 19,073 15.2
Tax (7,926) (2,284) 247.0 (6,320) 25.4
Reported PAT 14,051 8,064 74.3 12,753 10.2
EPS 155.2 89.1 74.3 144.3 7.6

Key  Ratios Q1 FY15 Q4 FY14 chg qoq Q1 FY14 chg yoy
NIM (%) 3.4 3.2 0.2 3.5 (0.1)
Yield on advances (%) 10.3 9.9 0.3 10.5 (0.2)
Yield on investments (%) 8.0 7.9 0.1 7.8 0.2
Yield on Funds (%) 8.3 8.0 0.3 8.5 (0.2)
Cost of Deposits (%) 6.1 6.1 (0.0) 6.4 (0.3)
Cost of Funds (%) 5.1 5.1 0.0 5.3 (0.1)
CASA (%) 36.8 38.3 (1.5) 37.8 (1.0)
C/D (x) 0.78 0.77 0.01 0.77 0.01
Non-interest income (%) 22.0 25.9 (3.9) 25.6 (3.5)
Non-int inc/Int exp (%) 17.2 19.7 (2.5) 20.7 (3.5)
Cost to Income (%) 44.4 41.2 3.1 43.4 1.0
Provisions/Income (%) 7.2 17.1 (9.9) 9.1 (1.8)
BV (Rs) 991.3 952.5 38.8 920.2 71.1
RoE (%) 15.7 9.3 6.3 15.7 (0.0)
RoA (%) 1.0 0.6 0.4 1.0 (0.0)
CAR (%) 11.5 11.5 - 12.4 (0.9)
Gross NPA (%) 5.5 5.3 0.2 4.8 0.6
Net NPA (%) 3.0 2.9 0.2 3.0 0.0
Source: Company, India Infoline Research
 

Loan growth marginally improves to 14% yoy; Retail, SME and Agri remain key drivers 

PNB’s loan growth accelerated marginally to 14% yoy driven by sustained strong growth in Agri (33% yoy), Retail (24% yoy) and SME (37% yoy) segments. Within retail segment, housing loans (comprising 46% of the portfolio) grew by healthy 20% yoy. Credit in the large corporate segment was flat yoy; overall infra credit grew by 8% yoy and within that exposure to power sector also grew by 8% yoy. Loans to services sector grew by modest 5% yoy. We expect PNB to grow its advances by 15% in FY15 and 18% in FY16 with low Tier-1 capital (8.8%) being a hindrance to faster growth. 

Domestic CASA ratio falls on seasonal factors; sustained robust traction in non-bulk TDs 

Deposits grew behind advances at 12% yoy as CASA growth decelerated to 9% yoy on the back of steep sequential decline in current deposits (-14% yoy). Savings deposits growth stood at 11% yoy and the its contribution in total deposits remained stable at 31%. Domestic CASA at 40% represented a 130bps qoq decline. The share of bulk deposits (preferential rates deposits >Rs1cr + CDs) declined to 6% of total deposits from 9% at the end of Q1 FY14. Traction in PNB’s non-bulk TDs remained strong at 21% yoy. We expect the share of CASA deposits to inch-up in the coming quarters.

NIM bounced back as expected; outlook is stable   

As expected, PNB’s NIM recovered by 20bps qoq to 3.4% on the back of lower interest reversals during the quarter. The impaired assets addition was much lower than the previous quarter. Reported yield on advances improved by 35bps qoq to 10.3% whereas the cost of deposits was stable at 6.1% despite the decline in CASA ratio. PNB’s NIM is estimated to remain steady during remainder of the year with delinquencies to stabilize and CASA ratio to improve. 

 

Core fee growth disappoints; C/I ratio deteriorates significantly

Core fee growth markedly moderated to just 2% yoy from 18% yoy in the previous quarter. This was essentially driven by much lower exchange profits (Rs970mn v/s Rs1.6bn) and sharp deceleration in processing fees (3% yoy growth as compared to 27% yoy in Q4 FY14). Treasury profit was also significantly lower (-48% yoy) at Rs1.5bn. Growth in opex remained modest at 9.5% yoy but cost/income ratio deteriorated substantially on lower non-interest income.

 

Influx of impaired assets much lower qoq; significant write-offs contain increase in Gross NPLs

PNB’s slippages came in higher than our expectation at Rs29.5bn representing elevated annualized delinquency ratio of 3.4%. However, fresh restructuring during the quarter was lower than seen in previous quarters at Rs14.5bn. Overall impaired assets addition at Rs44bn was substantially lower than Rs76.5bn witnessed in the previous quarter. Significant write-offs at Rs12bn contained the increase in absolute Gross NPLs. PNB provided substantially for NPLs (credit cost at annualized 153bps) utilizing the Rs3.8bn provisioning write-back on the investment portfolio. Though addition of impaired assets creation in likely to com-off, the pace of improvement is expected to be gradual. 

Fairly priced, stock to underperform in the near term; Rate Reduce 

In spite of factoring incremental improvement in impaired assets trends and RoA recovery led by stabilization of credit cost, PNB’s valuation at 1.1x FY16 P/ABV appears pretty fair not leaving room for further re-rating in the near term. Rather any negative surprises on asset quality front would weigh on valuation. Given the not so favourable risk-reward at the current price, we rate the stock as Reduce with 9-12 month target price of Rs892.


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Total operating income 190,724 207,229 234,095 273,821
yoy growth (%) 8.3 8.7 13.0 17.0
Operating profit (pre-prov) 109,074 113,849 129,510 154,594
Net profit 47,477 33,430 53,505 62,367
yoy growth (%) (2.8) (29.6) 60.0 16.6
 
EPS (Rs) 134.3 92.3 147.8 172.3
Adj.BVPS (Rs) 679.3 678.4 740.4 849.4
P/E (x) 6.9 10.0 6.2 5.4
P/BV (x) 1.4 1.4 1.2 1.1
ROE (%) 16.5 10.2 14.6 15.1
ROA (%) 1.0 0.7 0.9 0.9
Dividend yield (%) 2.9 2.4 2.7 3.5
CAR (%) 11.7 11.5 11.3 10.7
Source: Company, India Infoline Research

***Note: This is a NSE Chart

 

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