Punjab National Bank (Q2 FY13)

Punjab National Bank (Q2 FY13)

January 01, 1970 5:30 IST | India Infoline News Service
CMP Rs750, Target Rs718, Downside 4.3%
  • Loan growth decelerates; deposit profile improves

  • NIM decline on lower lending yields; likely to weaken in coming quarters

  • Core fee growth fell off-the-cliff; C/I ratio increases materially

  • Asset quality deterioration accentuates; outlook remains perturbing

  • Steep earnings/BV downgrade continues; stock to underperform significantly

Result table
(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 104,211 105,450 (1.2) 89,520 16.4
Interest expended (67,717) (68,498) (1.1) (54,994) 23.1
Net Interest Income 36,494 36,951 (1.2) 34,526 5.7
Other income 9,054 11,660 (22.4) 8,889 1.9
Total Income 45,548 48,611 (6.3) 43,414 4.9
Operating expenses (20,219) (20,203) 0.1 (18,137) 11.5
Provisions (10,738) (10,325) 4.0 (7,103) 51.2
PBT 14,590 18,084 (19.3) 18,175 (19.7)
Tax (3,935) (5,627) (30.1) (6,124) (35.8)
Reported PAT 10,656 12,457 (14.5) 12,050 (11.6)

(Rs mn) Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) 3.5 3.6 (0.1) 4.0 (0.5)
Yield on Advances (%) 11.1 11.5 (0.4) 11.9 (0.8)
Cost of Deposits (%) 6.9 7.0 (0.1) 6.5 0.4
CASA (%) 35.8 34.6 1.2 36.3 (0.5)
C/D (x) 0.75 0.76 (0.01) 0.73 0.02
Non-interest income (%) 19.9 24.0 (4.1) 20.5 (0.6)
Cost to Income (%) 44.4 41.6 2.8 41.8 2.6
BV (Rs) 845.5 814.1 31.4 705.4 140.1
RoE (%) 14.9 18.0 (3.2) 21.6 (6.7)
RoA (%) 0.9 1.1 (0.2) 1.2 (0.3)
CAR (%) 11.7 12.6 (0.8) 12.2 (0.5)
Gross NPA (%) 4.7 3.3 1.3 2.1 2.6
Net NPA (%) 2.7 1.7 1.0 0.8 1.9
Source: Company, India Infoline Research

Loan growth decelerates; deposit profile improves

In line with expectation, PNB’s loan book increased by marginal 2% qoq though representing a brisk growth of 21% on yoy basis. While domestic advances were flat, international advances grew by 3% on sequential basis. 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 (27% yoy), overall deposits growth stood healthy at 17% yoy. Bank continued to shed bulk deposits reflected in the share further declining to 21%. With a strong 7% qoq increase in savings deposits, the yoy growth momentum improved to 15% from 13% in the previous quarter. Current account growth also picked up (9% qoq/19% yoy) aided by improvement in system liquidity. Consequently, CASA ratio improved by 120bps qoq to 35.8%.

NIM decline on lower lending yields; likely to weaken in coming quarters

PNB’s NIM contracted by 10bps qoq to 3.5% as lending yield came-off by 40bps. Interest reversal of Rs1.6bn due to high slippages, 25bps base rate reduction in Q1 FY13 and lower home loan and car loan rates offered since September were the prime factors that drove lending rate reduction. Cost of deposits declined marginally by 10bps qoq on account of lower cost of bulk deposits and improvement in mix. As per the bank, a substantial portion of bulk deposits would re-price at lower rates in H2 FY13. However, NIM outlook remains weak in the medium term as advances are likely to re-price faster than deposits. Bank has maintained NIM guidance at 3.5% for FY13 which we think could be missed.

Core fee growth fell off-the-cliff; C/I ratio increases materially

Fee income growth fell off-the-cliff from 18% yoy in Q1 FY13 to 1% yoy de-growth in Q2 FY13. Except for LC/LG income which grew by 13% yoy, all other major fee streams witnessed either negative or subdued growth. Trading profit and recovery of w/off accounts were lower sequentially at Rs600mn each. Opex was flat qoq on a higher base as the bank had started providing for pension and gratuity liability based on actuarial valuation from Q1 FY13. C/I ratio increased to 44% due to weak NII and fee performance.

Asset quality deterioration accentuates; outlook remains perturbing

Against expectation of Rs20bn, PNB reported significantly higher slippages at Rs45bn representing an annualized delinquency ratio of 6%. The contribution of Industry and Agri was high in slippages at Rs18bn and Rs11bn respectively; SME and Retail contributed Rs8.5bn and Rs3.5bn respectively. GNPL ratio substantially deteriorated to 4.7%, increasing 40% qoq in absolute terms. PNB indicated that elevated slippages could continue if the economic environment remains weak. Restructuring was also significant during the quarter at Rs28bn as compared to Rs12bn in Q1 FY13. The outstanding restructured book stood at Rs279bn, a substantial 9.3% of advances. Responding to huge slippages, PNB provided for higher credit cost of 1.5%. However, it was inadequate to sustain PCR which witnessed a steep fall from 63% in previous quarter to 54%. With slippages outlook perturbing and a low PCR, credit cost is likely to be 1.3-1.4% during H2 FY13. RoA hit a multi-quarter low of 91bps on account of weak revenue and asset quality performance. 

Steep earnings/BV downgrade continues; stock to underperform significantly

Post a disastrous Q2 FY13 performance, we cut FY13/14 earnings and BV estimates of PNB by 10-12%. This is the second consecutive quarter of such a steep revision in estimates driven by bank’s consistent negative surprise on asset quality. We have lowered 9-month target price from Rs830 to Rs718 implying that the stock would significantly underperform. Recommendation has been changed to Market Performer.

Financial Summary
Y/e 31 Mar (Rs m) FY11 FY12 FY13E FY14E
Total opera

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