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Punjab National Bank Overweight
PNBK.BO, PNB IN
3Q11: NII growth strong, but asset quality disappoints
• 3Q11 misses estimates: PNB reported Rs10.9bn of net profit, up 8% y/y
but below our and the consensus estimate of Rs11.4bn. Overall revenue
growth was strong, with positive margin surprise and strong balance
sheet growth but higher NPA provisions and operating costs led to the
earnings miss.
• Strong top-line growth: NII growth at 38% y/y was a positive surprise,
driven by higher-than-expected credit growth of 30% y/y and a surprise
margin improvement. Margins should moderate from current levels due
to rising rates and thus we factor in ~30-40bps contraction in margins
from current levels for FY12.
• Asset quality disappointed: Gross NPAs increased by 13% q/q to
~2.0% of total advances, reaching the upper band management has been
guiding for NPAs. Credit costs thus inched up to >1.0% in 3Q10, with
overall NPA provisions up 38% y/y. Asset quality remains a concern but
management has indicated that they expect slippages to improve and
recoveries to accelerate going forward.
• Pension liability in line with expectations: Management has disclosed
that pension liability is ~Rs36bn and that is in line with expectations.
Opex was high mainly due to the higher provisions in pensions and we
would expect low operating growth in FY12, given the high base in
FY11.
• Marginal change in estimates, maintain Overweight: We adjust our
estimates marginally for PNB, factoring in higher credit costs in
FY12/13. PNB's asset quality over the last two to three quarters has been
disappointing and that could weigh on near-term stock performance. But
in spite of factoring in higher credit costs, we believe PNB should be
able to sustain ROEs at ~24-25% and current valuations at 1.5x FY12E
book look attractive to us; thus, we maintain our OW rating.
Margins surprise again
Margins improved by ~5bps q/q to 4.1% vs. 4.06% in 2Q11 leading to stronger-thanexpected
NII growth. Also other income growth was stronger than expected due to
higher recovery from written off accounts, leading to higher-than-expected net
revenue growth. Margins were aided in the quarter due to one-off interest income on
IT refund of Rs1.0bn. Management does expect margins to moderate from current
levels due to increasing cost of funds. Also, given tepid growth in current deposits
reliance on bulk deposits increased with 41% y/y growth in 3Q11.
Asset quality disappoints, slippages higher than expected
Gross NPAs increased by 13% q/q to ~2.0% of total advances, reaching the upper
band management has been guiding for NPAs. High slippages thus led to ~38% q/q
increase in NPA provisions. Five large accounts totaling ~Rs6.0bn had slipped in this
quarter and management expects some recoveries in the coming quarters from these
accounts. Of the sensitive sectors, management clarified that their net exposure to 2G
new telecom licenses is only Rs2.0bn and asset quality impact from this would be
limited.
Other highlights
Balance sheet growth was strong: Balance sheet growth remained strong, with loan
growth of 30% y/y and deposit growth of 24%. Current deposit growth has been
sluggish at ~15% y/y and that has led to marginal contraction in CASA ratios.
Management expects ~25% growth in FY11 and +2% system growth going forward.
Opex high on high pension provisioning: Opex was up 38% y/y and this was
mainly due to ~47% y/y increase in employee expenses. Management has disclosed
that pension expenses would be ~Rs36bn and that is inline with expectations and the
higher provisioning in this quarter is to achieve the higher quarterly run rate on
pensions. Management expects cost-to-income to remain ~40-41%. We believe post
the sharp increase in employee expenses this year, growth in operating costs would
be lower beginning in FY12.
Marginal change in estimates, maintain Overweight: We adjust our estimates
marginally for PNB, factoring in higher credit costs in FY12/13. PNB's asset quality
over the last two to three quarters has been disappointing and that would weigh on
near-term stock performance. But in spite of factoring in higher credit costs we
believe PNB would be able to sustain ROEs at ~24-25% and we think current
valuations at 1.5x FY12E book look attractive; thus, we maintain OW.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank Overweight
PNBK.BO, PNB IN
3Q11: NII growth strong, but asset quality disappoints
• 3Q11 misses estimates: PNB reported Rs10.9bn of net profit, up 8% y/y
but below our and the consensus estimate of Rs11.4bn. Overall revenue
growth was strong, with positive margin surprise and strong balance
sheet growth but higher NPA provisions and operating costs led to the
earnings miss.
• Strong top-line growth: NII growth at 38% y/y was a positive surprise,
driven by higher-than-expected credit growth of 30% y/y and a surprise
margin improvement. Margins should moderate from current levels due
to rising rates and thus we factor in ~30-40bps contraction in margins
from current levels for FY12.
• Asset quality disappointed: Gross NPAs increased by 13% q/q to
~2.0% of total advances, reaching the upper band management has been
guiding for NPAs. Credit costs thus inched up to >1.0% in 3Q10, with
overall NPA provisions up 38% y/y. Asset quality remains a concern but
management has indicated that they expect slippages to improve and
recoveries to accelerate going forward.
• Pension liability in line with expectations: Management has disclosed
that pension liability is ~Rs36bn and that is in line with expectations.
Opex was high mainly due to the higher provisions in pensions and we
would expect low operating growth in FY12, given the high base in
FY11.
• Marginal change in estimates, maintain Overweight: We adjust our
estimates marginally for PNB, factoring in higher credit costs in
FY12/13. PNB's asset quality over the last two to three quarters has been
disappointing and that could weigh on near-term stock performance. But
in spite of factoring in higher credit costs, we believe PNB should be
able to sustain ROEs at ~24-25% and current valuations at 1.5x FY12E
book look attractive to us; thus, we maintain our OW rating.
Margins surprise again
Margins improved by ~5bps q/q to 4.1% vs. 4.06% in 2Q11 leading to stronger-thanexpected
NII growth. Also other income growth was stronger than expected due to
higher recovery from written off accounts, leading to higher-than-expected net
revenue growth. Margins were aided in the quarter due to one-off interest income on
IT refund of Rs1.0bn. Management does expect margins to moderate from current
levels due to increasing cost of funds. Also, given tepid growth in current deposits
reliance on bulk deposits increased with 41% y/y growth in 3Q11.
Asset quality disappoints, slippages higher than expected
Gross NPAs increased by 13% q/q to ~2.0% of total advances, reaching the upper
band management has been guiding for NPAs. High slippages thus led to ~38% q/q
increase in NPA provisions. Five large accounts totaling ~Rs6.0bn had slipped in this
quarter and management expects some recoveries in the coming quarters from these
accounts. Of the sensitive sectors, management clarified that their net exposure to 2G
new telecom licenses is only Rs2.0bn and asset quality impact from this would be
limited.
Balance sheet growth was strong: Balance sheet growth remained strong, with loan
growth of 30% y/y and deposit growth of 24%. Current deposit growth has been
sluggish at ~15% y/y and that has led to marginal contraction in CASA ratios.
Management expects ~25% growth in FY11 and +2% system growth going forward.
Opex high on high pension provisioning: Opex was up 38% y/y and this was
mainly due to ~47% y/y increase in employee expenses. Management has disclosed
that pension expenses would be ~Rs36bn and that is inline with expectations and the
higher provisioning in this quarter is to achieve the higher quarterly run rate on
pensions. Management expects cost-to-income to remain ~40-41%. We believe post
the sharp increase in employee expenses this year, growth in operating costs would
be lower beginning in FY12.
Marginal change in estimates, maintain Overweight: We adjust our estimates
marginally for PNB, factoring in higher credit costs in FY12/13. PNB's asset quality
over the last two to three quarters has been disappointing and that would weigh on
near-term stock performance. But in spite of factoring in higher credit costs we
believe PNB would be able to sustain ROEs at ~24-25% and we think current
valuations at 1.5x FY12E book look attractive; thus, we maintain OW.
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