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Punjab National Bank
F2Q11: Strong Underlying Trends
PNB reported profits of Rs10.7 bn for QE-Sep-10.
Profits were up 1% QoQ and 16% YoY and were ahead
of our estimate of Rs8.9 bn. Core-pre provision profits
grew by 9% QoQ and 33% YoY.
The key highlights from the results include:
1) Volume growth was strong. Loans grew by 7% QoQ
and 28% YoY. Deposits grew by 7% QoQ and 18%
YoY.
2) Margins expanded by 12 bps QoQ to 4.1%. NII grew
by 15% QoQ and 49% YoY.
3) Total costs were up 15% QoQ and 38% YoY. PNB
has already started providing for the second
pension option related liability and gratuity (Rs2.5
bn total this quarter). It expects the final pension
liability to be crystallized by the end of this quarter
(current estimate Rs25 bn).
4) Loan loss provisions decreased to Rs3.6 bn (0.7%
of loans, annualized) from Rs5.5 bn (1.2%) in the
previous quarter, driven by lower new NPL
formation. Coverage ratio was stable at 77%.
5) Net capital gains contribution to earnings was
negative Rs270 mn. This compares with a benefit of
Rs1.1 bn in QE Jun-10 and Rs0.7 bn in the same
quarter previous year.
Maintain OW: Headline profit growth trends seemed
weak – but underlying profitability was strong. Core
PPOP grew by 9% QoQ / 33% YoY. Even after making
provisions for pension/gratuity, PNB delivered a ROA of
1.38% average in F1H2011. In this context, we believe
that current valuations of 7.9x F2012e earnings and 4.8x
PPOP are still attractive; hence we maintain our OW.
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