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Punjab National Bank (PNB) reported in-line results for 2QFY11. Positive surprises were: (1) strong loan growth of 6% QoQ, (2) 12bp QoQ improvement in NIM, and (3) CASA growth of 25% YoY and 6% QoQ. While slippages remained high at Rs9.1b (1.85% annualized), they were partly offset by Rs3.7b upgradations and Rs1.3b write-offs. GNPAs grew 11% QoQ to Rs40.3b. Key highlights:
- Business growth remained strong, with loan growth of 28% YoY to Rs2.1t; deposits grew 18% YoY to Rs2.7t.
- Impressive performance on CASA continues; CASA grew ~25% YoY and 6% QoQ. CASA ratio remained stable QoQ at ~41%.
- NIM improved 56bp YoY and 12bp QoQ to 4.06%, aided by increase in yield on loans (up 31bp QoQ) and declining cost of deposits (down 6bp QoQ).
- PNB provided Rs2.5b towards pension and gratuity (same as in 1QFY11). Management has guided for gratuity related liability of Rs4.8b (to be fully provided in FY11) and Rs25b towards second pension option (may be revised depending upon the final details).
Valuation and view: We expect PNB to post earnings CAGR of 20% over FY10-12. We expect RoE and RoA to remain superior at ~25% and ~1.4%, respectively over FY10-12. The stock trades at 1.7x FY12E BV and 7.3x FY12E EPS.
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