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Bank Snapshot
Punjab & Sind Bank is a GoI undertaking, incorporated in June 1908 in Amritsar. Bank was one of the six banks nationalized by the GoI in April 1980, and
today, it is one of 19 nationalized banks in India. In the annual Business TodayKPMG survey of Best Banks in India 2008, it was ranked number one on the list
of ‘Small Sized Best Banks in India’ (i.e. banks with a then balance sheet size of
less than ` 24,000 crore).
Objects of Issue
Augment bank’s capital base to meet the capital adequacy norms for future
capital requirements and the growth in its assets, primarily its loan and investment portfolio due to the growth of the Indian economy, and for other
general corporate purposes
As bank is engaged in the business of banking, it is seeking to strengthen its
capital base to support the future growth in its assets and comply with the capital adequacy requirements applicable to bank. Other general corporate purposes would include development of infrastructure to support its business growth
and service its customers.
Achieve the benefits of listing on the Stock Exchanges
Bank believe that equity capital markets is an ideal source for meeting long
term capital adequacy requirements of a growing bank like Punjab & Sind
Bank. In addition, the listing of its Equity Shares will, among other things, enhance its visibility and brand name among its existing and potential customers.
As a listed entity it would be able to attract high quality and talented personnel.
Business Details
In over 100 years of operation, bank have significantly grown its branch network with a presence predominantly in north India. As on October 31, 2010,
bank’s network comprised of 926 branches and 63 ATMs across India. It also
sponsor one regional rural bank, Sutlej Gramin Bank, in collaboration with
the GoI and the state Government of Punjab. As on September 30, 2010, it had
a total of 8,047 employees, serving over 0.66 crore customers.Bank’s primary
business is taking deposits, and making advances and investments, and is
principally divided into retail banking, corporate banking, priority sector
banking, treasury operations and other banking services such as agency functions for insurance, distribution of mutual funds and pension and tax collection services. Bank have various deposit products, such as current, savings
and term deposits for its customers. In retail banking, it provide loans and
advances for housing, trade, automobiles, consumer durables, education and
personal loans. Bank provide commercial banking products and services to
corporate customers, including mid-sized and small businesses and government entities. In corporate banking, its loan products include term loans to
finance capital expenditure of assets across various industries as well as
short-term loans, cash and export credit and other working capital financing
and bill discounting facilities. Bank also provide credit substitutes, such as
letters of credit and guarantee. Bank also engage in syndication of loans provided by other financial institutions and other fee-based services such as cash
management and remittance services. In the priority sector, it offer direct financing to farmers for production, as well as indirect financing for infrastructure development and credit to suppliers of agricultural inputs. Bank also
offer a wide range of general banking services to its customers including
ATM cards, cash management, remittance services and collection services.
Industry Overview
We expect the banking industry to continue to record brisk PAT growth in
the December 2010 quarter. The industry’s net profit is expected to rise by
17.7 per cent during the quarter, after having grown by over 20 per cent in
the previous two quarters. We expect interest income to rise by 16.8 per
cent, aided by a 20 per cent rise in core interest income. Growth in interest
cost will continue to lag income growth, aiding the healthy growth in PAT.
Growth in income from advances will be mainly driven by a strong y-o-y
growth in bank credit. Average lending rates are expected to be only marginally higher than the year-ago levels. Interest expenses will grow at a relatively slower pace, as deposit growth continues to lag credit growth. Besides, deposit rates had declined at a sharper pace compared to lending
rates in the first half of 2009-10. Therefore, in spite of the recent hikes in deposit rates, average cost of deposit is expected to be lower than that a year
ago
Investment Rationale
Bank deliver its products and services through a wide variety of channels ranging from bank branches and ATMs. It have branch presence
across India, with a presence predominantly in north India, a region
which bank believe is rich in resources and offer great opportunity for
resource mobilization. As on October 31, 2010, bank’s network comprised of 926 branches and 63 ATMs across India. Out of these 926
branches, bank have 49 specialized branches including specialised
agriculture branches, personal banking branches and MSME branches
and one locker branch to cater to its customers from varied sectors including its priority sector customers.
With banking experience of over 100 years including over 30 years as a
public sector bank, it have built strong relationships with the central
and state governments as well as public sector enterprises, which has
been one of the drivers of its growth .
Concerns
Bank has incurred negative cash flows from operating activities for
fiscal 2006, fiscal 2009 and for the half year ended September 30, 2010,
amounting to ` 0.91 crore, ` 376.63 crore and ` 187.09 crore, respectively. Further, bank have incurred negative cash flow from its investing
activities for fiscal 2006, 2007, 2008, 2009, 2010 and for the half year
ended September 30, 2010, amounting to ` 5.90 crore, ` 4.26 crore, `
11.74 crore, ` 21.51 crore, ` 13.75 crore and ` 10.01 crore, respectively.
Bank had also incurred negative cash flow from the financing activities for fiscal 2008 and for the half year ended September 30, 2010,
amounting to ` 30.75 crore and ` 71.49 crore, respectively.
Bank have substantial exposure to the priority sector and its business
could be materially and adversely affected by market and other factors that impact the priority sector. In addition, regulations relating to
priority sector lending could have a material adverse impact on
bank’s financial condition and results of operations. As of September
30, 2010, priority sector credit constituted 31.57% of its adjusted net
bank credit. Further, loans to agricultural and micro and small enterprises borrowers constituted 12.48% and 12.28%, respectively, of its
adjusted net bank credit, as of September 30, 2010. Bank is required
to extend at least 18% of the adjusted net bank credit to the agriculture sector
Valuation
The bank is bringing the issue at price band of Rs 112-120 at
p/e multiple of 4.56-4.84 on post issue eps of Rs 24.78 (Basis
Annualized PAT for H1FY’11).
The bank has shown strong performance in its financials. Also,
bank outperformed its group average of the public sector banks
as well as all banks’ average for fiscal 2010 on several financial
and risk management parameters like return on advances as
adjusted to cost of funds, (ii) return on assets, (iii) net NPA ratio and (iv) business per employee, despite currently being
much smaller in size than many of the public sector and other
banks with which it compete. Therefore, looking at the valuations and all above , we find issue a very attractive destination
to deploy the funds. Hence we recommend investor to “Subscribe” the issue.
IPO STATISTICS
Issue Open Date 13
Dec 2010
Issue Close Date 16
Dec 2010
Price Band Rs 113-120* per Share
Face Value Rs 10 per Share
Bid Lot 50 Equity Shares
Issue Size 4, 00, 00,000 Shares
Pre Issue Equity Capital Rs 1830.56 Million
Post Issue Equity Capital Rs 2230.56 Million
Note *: 5% discount to retail investor
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