Punjab National Bank (Q4 FY12)

India Infoline News Service | Mumbai |

Mid-to-large corporate advances grew by modest 10% during the year while the MSME book grew by 23%.

  • Strong loan growth driven by Agri, Retail and Services segments
  • Steep contraction in NIM; margin weakness likely to persist
  • Core fee income traction remains strong; C/I ratio improves significantly
  • Deterioration in asset quality accelerates; outlook remains perturbing 
  • Weak fundamental outlook largely priced-in; upgrade to BUY 
 
Result table
(Rs m)
Q4 FY12
Q3 FY12
% qoq
Q4 FY11
% yoy
Total Interest Income
96,798
94,810
2.1
74,403
30.1
Interest expended
(63,698)
(59,444)
7.2
(44,113)
44.4
Net Interest Income
33,100
35,366
(6.4)
30,290
9.3
Other income
12,760
9,541
33.7
11,454
11.4
Total Income
45,859
44,907
2.1
41,744
9.9
Operating expenses
(16,498)
(18,143)
(9.1)
(16,668)
(1.0)
Provisions
(10,273)
(9,461)
-
(7,279)
-
PBT
19,089
17,303
10.3
17,796
7.3
Tax
(4,848)
(5,803)
-
(5,787)
-
Reported PAT
14,241
11,500
23.8
12,009
18.6
EPS
167.9
145.2
15.7
151.6
10.8
 
Key  Ratios
Q4 FY12
Q3 FY12
chg qoq
Q4 FY11
chg yoy
NIM (%)
3.5
3.9
(0.4)
3.9
(0.4)
Yield on advances (%)
11.4
12.0
(0.6)
10.8
0.6
Yield on Funds (%)
8.7
9.2
(0.5)
8.3
0.4
Cost of Deposits (%)
6.8
6.7
0.1
5.6
1.2
Cost of Funds (%)
5.7
5.8
(0.0)
4.9
0.8
CASA (%)
35.3
35.3
0.0
38.5
(3.1)
C/D (x)
0.77
0.75
0.03
0.77
0.00
Non-int. income (%)
27.8
21.2
6.6
27.4
0.4
Cost to Income (%)
36.0
40.4
(4.4)
39.9
(4.0)
RoE (%)
22.8
19.6
3.2
24.0
(1.2)
RoA (%)
1.3
1.1
0.2
1.3
(0.1)
CAR (%)
12.6
11.5
1.2
12.4
0.2
Gross NPA (%)
2.9
2.4
0.5
1.8
1.1
Net NPA (%)
1.5
1.1
0.4
0.9
0.7
Source: Company, India Infoline Research
 
Stronger-than-expected credit growth
Against our expectation of 5.5-6% qoq growth, PNB’s loan book grew by robust 10.5% qoq. The annual growth at 21% was significantly higher than the system as witnessed in previous years. The strong loan growth, both in the quarter and in the year, was largely driven by retail (12% qoq and 24% yoy; robust growth in vehicle loan and gold loan portfolios), agri (20% qoq and 30% yoy) and services (23% qoq and 31% yoy) segments. Mid-to-large corporate advances grew by modest 10% during the year while the MSME book grew by 23%. The growth of 12% yoy in industrial advances during the year was largely driven by power (43% yoy; disbursements on funded projects), metals (35% yoy) and cement/construction (50%+ yoy) sectors. Based on RBI’s projection of 17% credit growth for the system, PNB targets to grow its advances at 18% in FY13. 
Sequential deposits growth was lower; C/D ratio improved significantly 
Deposits grew behind advances during the quarter at 6.5% qoq leading to 200bps improvement in C/D ratio to 77%. Savings growth continued to be sluggish (3% qoq and 13% yoy) while growth in retail TDs remained robust (8% qoq and 30% yoy) both being a function of higher rates being offered on the latter. Though CASA ratio was stable sequentially, it represented a sharp yoy decline of 300bps+. The share of bulk TDs was stable at near 24%. Recent CASA mobilization initiatives taken by the bank and reversal in interest rate cycle should drive an improvement in CASA ratio in the longer term. 
 
Steep contraction in NIM; margin weakness likely to persist   
PNB’s NIM contracted sharply by 40bps qoq to 3.5% on the back of interest de-recognition (Rs1.25bn; ~13bps margin impact) on substantial fresh slippages (Rs26bn), increase in deposits cost (higher bulk deposit rates) and change in loan mix (towards agriculture lending). NIM outlook remains weak in the medium term as advances are likely to re-price faster than deposits in the rate-cut cycle. Against 3.8% NIM earned in FY12, the bank has guided for sustaining margin at 3.5%.   
Core fee income traction remains strong; C/I ratio improves significantly
Core fee income growth was strong at 12% qoq and 15% yoy. For the full-year, growth was impressive at 22% driven by brisk growth in income from Bills & Remittance (55%), ATM operations (46%), sale of insurance and MFs (102%) and forex (53%). Trading profit (Rs1.6bn) and recovery in written-off accounts (Rs2.4bn) were substantially higher on sequential basis. Opex declined qoq by 9% on the back lower provisioning wrt employee benefits (pension and gratuity liabilities lower than estimate). Driven by higher non-interest income and lower opex, C/I ratio improved materially by 440bps qoq to 36%.
 
Deterioration in asset quality accelerates; outlook remains perturbing 
Against expectation of Rs12-15bn, PNB reported significantly higher slippages at Rs28bn representing an annualized delinquency ratio of 4%. There was no lumpiness in slippages (Top 3 accounts contributed Rs5.5bn) and were largely diversified across sectors. GNPL ratio deteriorated significantly to 2.9%, far higher than bank’s guidance. PNB indicated that slippages could continue to be material in coming quarters due to weak economic conditions. Restructuring during the quarter was substantial at Rs86bn (Rs19bn in Q3 FY12 and Rs41bn in Q2 FY12) primarily contributed by Air India (~Rs20bn) and SEBs (~Rs47bn; mainly Rajasthan and UP discoms). The outstanding restructured book rose to Rs250bn, a substantial 8.5% of advances. Major restructuring in likely behind unless we see other large sectors coming under stress. In response to substantial slippages, bank raised credit cost to 1.4% (0.9% in Q3 FY12) and provisioning for restructured assets was also significantly higher. PCR declined sharply to 63% from 70% in the previous quarter and NNPL ratio jumped to 1.5%. With slippages outlook perturbing and a low PCR, credit cost is likely to remain near 1% during FY13 depressing the RoA. During the quarter, bank raised ~Rs29bn from LIC and GoI thereby improving Tier-1 capital to 9.3%.   
 
Weak fundamental outlook largely priced-in; upgrade to BUY  
In our recent report on PNB (March 26), we reaffirmed ‘Market Performer’ rating on the stock citing weakness in asset quality and margin compression as key concerns. Bank’s Q4 FY12 results were dominated by disappointing asset quality performance and margin weakness. While the outlook on both the fronts still remains challenging, we believe that sharp price correction in recent past has largely captured a lower RoA delivery. We therefore upgrade our rating on PNB to BUY while downgrading earnings/BV estimates for FY13/14. Our 9-month price target has been lowered to Rs880.

Financial summary
BSE 171.60 2.30 (1.36%)
NSE 171.60 2 (1.18%)

***Note: This is a NSE Chart

 

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