Punjab National Bank (Q4 FY14)

India Infoline News Service | Mumbai |

Loan growth picks-up further; Retail, SME and Agri segments were key drivers

CMP Rs800, Target Rs734, Downside 8.2%

  • Loan growth picks-up further; Retail, SME and Agri segments were key drivers 
  • Deposits profile continues to improve; domestic CASA ratio up 90bps qoq
  • Sharp decline in NIM came as a negative surprise
  • Core fee growth improves; C/I ratio falls substantially on lower opex growth 
  • Influx of impaired assets was much higher than expected; PAT dives 30% yoy on higher provisioning 
  • Rate Market Performer; stock to underperform on asset quality concerns 
Result table
(Rs mn) Q4 FY14 Q3 FY14 % qoq Q4 FY13 % yoy
Total Interest Income 111,013 109,839 1.1 103,788 7.0
Interest expended (70,995) (67,628) 5.0 (66,001) 7.6
Net Interest Income 40,018 42,211 (5.2) 37,787 5.9
Other income 13,969 9,384 48.9 11,740 19.0
Total Income 53,987 51,596 4.6 49,527 9.0
Operating expenses (22,253) (24,572) (9.4) (21,010) 5.9
Provisions (21,387) (15,900) 34.5 (14,777) 44.7
PBT 10,347 11,123 (7.0) 13,740 (24.7)
Tax (2,284) (3,569) (36.0) (2,432) (6.1)
Reported PAT 8,064 7,554 6.7 11,308 (28.7)
EPS 89.1 83.5 6.7 128.0 (30.4)

Key  Ratios Q4 FY14 Q3 FY14 chg qoq Q4 FY13 chg yoy
NIM (%) 3.2 3.6 (0.4) 3.5 (0.3)
Yield on advances (%) 9.9 10.6 (0.7) 10.7 (0.8)
Yield on investments (%) 7.9 7.8 0.1 7.9 0.0
Yield on Funds (%) 8.0 8.4 (0.4) 8.5 (0.5)
Cost of Deposits (%) 6.1 6.3 (0.2) 6.6 (0.5)
Cost of Funds (%) 5.1 5.2 (0.1) 5.4 (0.3)
CASA (%) 38.3 38.3 0.0 39.2 (0.9)
C/D (x) 0.77 0.78 (0.00) 0.79 (0.01)
Non-interest income (%) 25.9 18.2 7.7 23.7 2.2
Non-int inc/Int exp (%) 19.7 13.9 5.8 17.8 1.9
Cost to Income (%) 41.2 47.6 (6.4) 42.4 (1.2)
Provisions/Income (%) 17.1 13.3 3.8 12.8 4.3
BV (Rs) 952.5 936.9 15.7 915.5 37.0
RoE (%) 9.3 8.9 0.4 14.0 (4.6)
RoA (%) 0.6 0.6 - 0.9 (0.4)
CAR (%) 11.5 11.0 0.5 12.7 (1.2)
Gross NPA (%) 5.3 5.0 0.3 4.3 1.0
Net NPA (%) 2.9 2.8 0.1 2.4 0.5
Source: Company, India Infoline Research

Loan growth picks-up further; Retail, SME and Agri were key drivers 
PNB’s loan growth accelerated further from 10% yoy in Q3 FY14 to 13% yoy. Sequentially, the advances grew by strong 7% driven by robust growth in Agri (20% qoq, included PSL buyouts), Retail (7.8% qoq) and SME (6.5% qoq) segments. On yoy basis also, growth in these segments stood significantly higher than the overall bank - Agri (39% yoy), Retail (23% yoy) and SME (24% yoy). Within retail segment, housing loans (comprising 44% of the portfolio) grew by healthy 19% yoy. Growth in the large corporate segment was modest at 9% yoy; infra credit grew by 9% yoy and within that exposure to power sector grew by 18% yoy. PNB expects its domestic loan book to grow by 15% yoy during the current year, 

Deposits profile continues to improve; domestic CASA ratio up 90bps qoq
Deposits grew in-line with advances at 15% yoy during FY14. The growth in savings deposits remained strong at 15% yoy and the share of domestic CASA improved by 90bps qoq to 41.3%. The share of high-cost deposits (preferential rates deposits >Rs1cr) declined to 5% of total deposits from 12.5% at the end of FY13. PNB’s deposits profile in likely to further improve in coming quarters with domestic CASA ratio gradually inching-up

Sharp decline in NIM came as a negative surprise
During Q4 FY14, PNB’s NIM witnessed a sharp correction of 40bps qoq thus surprising the street negatively. This was despite a material 20bps qoq decline in cost of deposits on the back of improvement in CASA ratio and lower share of high-cost deposits. The blended yield on advances fell by substantial 70bps qoq due to sharp uptick in delinquencies and lower re-pricing of some corporate loans. As per the bank, combined these factors impacted interest income of the quarter by ~Rs2bn. PNB does not expect any material improvement in NIM over the coming quarters.
 

Core fee growth improves; C/I ratio falls substantially on lower opex growth 
Core fee growth markedly improved to 18% yoy from 10% yoy in the previous quarter. Growth was particularly strong in the streams of loan processing (27% yoy) and bills & remittances (27% yoy). Treasury profit and recovery of written-off accounts stood significantly during the quarter at Rs1.9bn and Rs2.7bn respectively. Growth in opex came-off to just 6% yoy thus driving a sharp improvement in cost/income ratio (from 48% to 41%) despite the sequential decline in NII.

Influx of impaired assets was much higher than expected; PAT dives 30% yoy on higher provisioning 
PNB’s slippages came in at Rs44.5bn (our estimate was Rs21-22bn) representing an alarmingly high annualized delinquency ratio of 5.3%. Of the above, Rs12.5bn slipped from the standard restructured portfolio. This was very disappointing as the bank was hopeful of continuing the resilient show of Q3 FY14 (delinquency ratio at 1.9%). Recoveries, upgradations and write-offs comprised Rs22bn and therefore net addition to GNPL block was Rs23bn, a 14% qoq increase taking the ratio to 5.3%. PNB made substantial provisions against the new NPLs and the credit cost stood at annualized 205bps, a multi-quarter high. With elevated provisioning, the PCR was sustained at 59%. Fresh restructuring continue to be high standing at Rs32bn for Q4 FY14 but the pipeline is marginal at Rs12bn. Investment depreciation provision was substantially lower than expected at Rs280mn. As a result of higher provisioning for impaired assets, PAT for the quarter dived 30% yoy to Rs8bn.


Rate market performer; stock to underperform on asset quality concerns 
In our view, subdued asset quality outlook would preclude further valuation recovery in the near term for PNB. Despite earning much better NIMs than most peers, PNB is unlikely to report a materially higher RoA in FY15. However, we do expect bank’s RoA to recover to 0.9% in FY16 on assumption that asset quality stress would significantly abate by then. The recent steep rally in the stock has re-rated valuation significantly which currently stands at par with Bank of Baroda. We believe that PNB should trade at a discount to BOB given the latter’s superior performance in recent quarters and therefore expect the stock to underperform in the near term. Rate Market Performer with 9-12 month target price of Rs734.

Financial Summary
BSE 172.85 0.30 (0.17%)
NSE 172.95 0.25 (0.14%)

***Note: This is a NSE Chart

 

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Y/e 31 Mar (Rs m) FY13 FY14E FY15E FY16E
Total operating income 190,724 207,229 230,665 271,231
yoy growth (%) 8.3 8.7 11.3 17.6
Operating profit (pre-prov) 109,074 113,849 124,679 148,817
Net profit 47,477 33,430 45,138 61,785
yoy growth (%) (2.8) (29.6) 35.0 36.9





EPS (Rs) 134.3 92.3 124.7 170.6
Adj.BVPS (Rs) 679.3 678.4 713.2 793.7
P/E (x) 6.0 8.7 6.4 4.7
P/BV (x) 1.2 1.2