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EARNINGS REVIEW
Punjab National Bank (PNBK.BO)
Buy Equity Research
Below expectations on higher provisions
What surprised us
Punjab National Bank (PNB) reported 3QFY11 net profit of Rs10.9 bn (up
8% yoy), 10% below GSe, but PBT, treasury, and provisions, was ahead of
GSe by 7%, up 36% yoy. Key takeaways: (1) NII adjusted for one-off tax
refund came in 6% ahead of GSe, driven by higher NIMs at 4.13% (4.06%
in 2QFY11) and credit growth of 30% yoy; this despite a drop in CASA
(down 150 bp to 39%), as PNB benefitted from a higher PLR/base rate,
while the impact of cost of funds has yet to kick in. We estimate a 15 bp
decline in spreads in FY12 vs. FY11; (2) Non-interest income came in 6%
ahead of GSe, driven by higher exchange income; (3) Operating expenses
came in 8% higher than GSe, as PNB made Rs3.6bn in provisions for
gratuity and pension liabilities. Management indicated overall pension
liability of Rs36bn will be taken over the next five years; and (4) Loan loss
provisions (1.2% of loans) came in 91% higher than GSe. The increase in
NPLs remains a concern: Gross NPLs were up 13% qoq to Rs45.4 bn (2.0%
of loans), restructured loans +6% qoq to Rs143.6 bn (6.5% of loans) and
net NPLs up 10% qoq to Rs15.8 bn (0.7% of loans). Delinquency ratio
remained high at 2.26% in 3Q (vs. 2.2% in 2Q). We have thus increased our
FY11/12/13 provision estimates.
What to do with the stock
We lower our FY11E/12E/13E EPS by 4%/7%/2% to Rs140.52/ Rs170.40/
Rs200.48 to factor in higher provisions. Consequently, we lower our 12-
month CAMELOT-based price target to Rs1,430 (from Rs1,500); target
multiple unchanged. We retain our Buy rating on PNB, given strong
earnings growth, high RoA of about 1.3% and RoE of over 22.7% for
FY11E-FY13E. Key risks: (1) Higher slippages (2) higher growth leading to
dilution in margins
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Punjab National Bank (PNBK.BO)
Buy Equity Research
Below expectations on higher provisions
What surprised us
Punjab National Bank (PNB) reported 3QFY11 net profit of Rs10.9 bn (up
8% yoy), 10% below GSe, but PBT, treasury, and provisions, was ahead of
GSe by 7%, up 36% yoy. Key takeaways: (1) NII adjusted for one-off tax
refund came in 6% ahead of GSe, driven by higher NIMs at 4.13% (4.06%
in 2QFY11) and credit growth of 30% yoy; this despite a drop in CASA
(down 150 bp to 39%), as PNB benefitted from a higher PLR/base rate,
while the impact of cost of funds has yet to kick in. We estimate a 15 bp
decline in spreads in FY12 vs. FY11; (2) Non-interest income came in 6%
ahead of GSe, driven by higher exchange income; (3) Operating expenses
came in 8% higher than GSe, as PNB made Rs3.6bn in provisions for
gratuity and pension liabilities. Management indicated overall pension
liability of Rs36bn will be taken over the next five years; and (4) Loan loss
provisions (1.2% of loans) came in 91% higher than GSe. The increase in
NPLs remains a concern: Gross NPLs were up 13% qoq to Rs45.4 bn (2.0%
of loans), restructured loans +6% qoq to Rs143.6 bn (6.5% of loans) and
net NPLs up 10% qoq to Rs15.8 bn (0.7% of loans). Delinquency ratio
remained high at 2.26% in 3Q (vs. 2.2% in 2Q). We have thus increased our
FY11/12/13 provision estimates.
What to do with the stock
We lower our FY11E/12E/13E EPS by 4%/7%/2% to Rs140.52/ Rs170.40/
Rs200.48 to factor in higher provisions. Consequently, we lower our 12-
month CAMELOT-based price target to Rs1,430 (from Rs1,500); target
multiple unchanged. We retain our Buy rating on PNB, given strong
earnings growth, high RoA of about 1.3% and RoE of over 22.7% for
FY11E-FY13E. Key risks: (1) Higher slippages (2) higher growth leading to
dilution in margins
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