PUNJAB NATIONAL BANK: Diwali Muharat Pick by ShareKhan

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PNB is the 2nd largest PSU Bank which is well placed to take advantage of the next leg of credit expansion
given its outstanding pan India presence, higher than average advances growth and improving margins.


Core business to grow above industry average: PNB is confident of outpacing industry credit growth and
expects to grow its advances by 23% in FY11E as against 20.6%YoY growth witnessed in FY10. The credit
growth for Q2 FY 2011 was at 27.6 %, however the same is expected to tame down to 23 % which will still
be higher than industry growth rate of 19-20 %.




Margins to remain stable: With increase in Deposit Rates expected in 2nd half of FY 2011, due to lower
deposit mobilization for the banks, NIM of PNB is expected to stabilize at 3.75 %, lower than that of Q2 FY
2011 of 4.03% but still higher than most of the other PSU banks. With CASA of the bank growing at rapid
pace, it will easily be able to stabilize its NIM at 3.75 %.

Higher provision coverage to cushion earnings: Asset Quality of PNB is also strong with Gross NPA at 1.91
% and Net NPA at 0.69 %. Bank is of the opinion that the asset quality is under control and Gross NPA and
Net NPA will not go above 2 % and 1 % respectively.

 Provision Coverage Ratio of the bank is 77 % including
technical write offs and 64.6 % excl. technical write offs. Huge amount of recoveries are expected from
the slippages that have been recorded. We have factored in slippages at ~2 % for FY 2011 E and expect
Gross and Net NPA to be stable.

Valuation: In line with the increased provisioning in the quarter, according to our estimates, bank will
have an EPS of Rs140 for FY 2011E and Rs181 for FY 2012E. At the CMP of Rs1,313 bank trades at 1.7x its FY 2012E book value. We maintain our Buy recommendation and price target of Rs1,505 on the stock.