Punjab National Bank (Q3 FY13)

Core fee growth weakened further; C/I ratio increases materially

February 01, 2013 2:38 IST | India Infoline News Service
CMP Rs912, Target Rs978, Upside 7.2%
²  Loan growth decelerates; deposit profile improves
²  NIM resilience was heartening; bank to meet its full-year margin guidance 
²  Core fee growth weakened further; C/I ratio increases materially
²  Robust recoveries/upgrades prevent asset quality deterioration
²  Upgrade earnings/BV estimates; increase price target significantly

Result table
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Total Interest Income 105,485 104,211 1.2 94,810 11.3
Interest expended (68,151) (67,717) 0.6 (59,444) 14.6
Net Interest Income 37,333 36,494 2.3 35,366 5.6
Other income 9,705 9,054 7.2 9,541 1.7
Total Income 47,038 45,548 3.3 44,907 4.7
Operating expenses (20,219) (20,219) 0.0 (18,143) 11.4
Provisions (8,016) (10,738) (25.4) (9,461) (15.3)
PBT 18,803 14,590 28.9 17,303 8.7
Tax (5,747) (3,935) 46.1 (5,803) (1.0)
Reported PAT 13,056 10,656 22.5 11,500 13.5

(Rs mn) Q3 FY13 Q2 FY13 chg qoq Q3 FY12 chg yoy
NIM (%) 3.5 3.5 (0.0) 3.9 (0.4)
Yield on Advances (%) 10.9 11.1 (0.2) 12.0 (1.1)
Cost of Deposits (%) 6.8 6.9 (0.2) 6.7 0.0
CASA (%) 35.8 34.6 1.2 36.3 (0.5)
C/D (x) 36.9 35.8 1.1 35.3 1.6
Non-interest income (%) 0.77 0.75 0.02 0.75 0.02
Cost to Income (%) 43.0 44.4 (1.4) 40.4 2.6
BV (Rs) 884.0 845.5 38.5 741.8 142.2
RoE (%) 17.4 14.9 2.6 19.6 (2.2)
RoA (%) 1.1 0.9 0.2 1.1 (0.0)
CAR (%) 11.7 11.7 (0.1) 11.5 0.2
Gross NPA (%) 4.6 4.7 (0.0) 2.4 2.2
Net NPA (%) 2.6 2.7 (0.1) 1.1 1.5
Source: Company, India Infoline Research

Loan growth decelerates further; deposit profile continues to improve

PNB’s loan book growth at 12% yoy/-1% qoq was behind expectations. YTD, the advances of the bank have grown by just 1% as the bank moderated its growth significantly in the wake of high delinquencies. For the full-year FY13, credit growth could be materially behind the system while in FY14 it could be in-line. Bank has been pushing credit growth in the retail and services sectors whereas it has been growth averse in SME, agriculture and commercial real Estate segments. Deposits de-grew 4% qoq and represented a modest growth of 8% on yoy basis. CASA mobilization remained challenging with current accounts balance declining by 10% qoq and savings balances growing by modest 1.5% qoq. Amid much weaker overall deposits growth, savings and CASA ratio improved by 160bps qoq and 110bps qoq respectively. Bank continued to shed bulk deposits reflected in the share declining significantly to 15%.

NIM resilience was heartening; bank to meet its full-year margin guidance 

NIM was stable sequentially at 3.5% against our expectation of marginal decline. Product specific rate cuts and substantial slippages (interest reversal of ~Rs0.8bn) led to 20bps qoq contraction in the average lending yield. Cost of deposits also declined by an equivalent margin on the back of better mix and lower bulk deposit rates. PNB has reduced base rate by 25bps in Q1 FY13 and lowered home loan and car loan rates in September. Bank expects a further contraction in lending yield to be offset by lower bulk TD rates during the current quarter thereby keeping NIM stable. Bank is likely to meet its NIM guidance at 3.5% for FY13.

Core fee growth weakened further; C/I ratio increases materially

Post entering the negative growth trajectory in Q2 FY13, fee income growth weakened further with 9% yoy decline. Most of major fee streams de-grew or witnessed subdued growth. Trading profit and recovery in w/off accounts were higher sequentially at Rs730mn and Rs1.45bn respectively. Opex was flat qoq and muted on yoy basis; bank started providing for pension and gratuity liability based on actuarial valuation from Q1 FY13. C/I ratio improved 140bps qoq to 43% mainly on the back of flat opex.  

Robust recoveries/upgrades prevent asset quality deterioration

PNB’s slippages came in at Rs30bn (our expected range was Rs25-30bn) representing an annualized delinquency ratio of 4%. The contribution of industry and services segments was substantial in slippages. On the positive side, bank witnessed robust recoveries/upgrades to the tune of Rs30bn. With ongoing intense recovery efforts, the bank is positive about recovering a material amount of NPAs; over the past five quarters, PNB has reported substantial delinquencies of ~Rs150bn. GNPL in absolute terms were flat qoq and the ratio improved marginally to 4.6%. Restructuring was higher during the quarter at Rs37bn and the outstanding book stood at Rs303bn, a substantial 10% of advances. Loan loss provisioning during the quarter was significantly lower at Rs4.7bn (Rs11.4bn in Q2 FY13) aided by provisioning write-back on NPA recoveries/upgradations. During the quarter, bank provided Rs1.73bn as additional provisioning (increased to 2.75%) on standard restructured assets. PCR marginally improved to 56% and the bank intends utilize expected gains on the treasury portfolio towards improving the cover. On strong NIM and asset quality performance, RoA improved by 20bps qoq to 1.1% in Q3 FY13.

Upgrade earnings/BV estimates; increase price target significantly  

Post a reassuring Q3 FY13 performance, we raise FY13/14 earnings and BV estimates of PNB by 4-5%. In our view, the worst of the credit cycle is behind for PNB and robust recoveries/upgradations should contain further asset quality deterioration. While retaining Market Performer rating on the stock, we have increased 9-month target price significantly to Rs978 valuing the bank at 1.05x FY15 P/adj.BV.

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Total operating income 176,170 192,220 217,064 254,073
yoy growth (%) 14.2 9.1 12.9

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