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Punjab National Bank: Core business strong, asset quality hinders…
The going seems to be good for PNB as business growth remained strong
at 26% YoY (6% QoQ) with advances growing 30% YoY to | 221225 crore
and deposits rising 23% to | 288873 crore with C/D ratio high at 77%.
This boosted NII by 45% YoY to | 3203 crore with NIM inching up 7 bps
QoQ to 4.13%. Other income grew 19% QoQ (flat YoY) to | 857 crore due
to higher trading, fee income and stronger recoveries. A 47% YoY jump in
staff costs due to pension and gratuity liability and 153% YoY (38% QoQ)
rise in provisions to | 714 crore on account of higher credit costs
impacted the bottomline as profit rose only 8% YoY (flat QoQ) to | 1090
crore. We estimate NIM will dip by 10-15 bps next quarter due to CASA
dip (declined 200 bps QoQ to 39%) and rising cost of deposits and expect
business momentum to continue with deposits and advances expanding
at 20% and 23% CAGR propelling profits by 18% CAGR over FY10-12E.
Asset quality deteriorates further, provisioning maintained...
GNPA shot up 13% QoQ to | 4541 crore (GNPA ratio up 12 bps QoQ to
2.03%) on account of slippages exceeding upgradations and recoveries
over 9MFY11. NNPA worsened 10% QoQ to | 1575 crore (NNPA ratio up 3
bps QoQ to 0.72%). Provision coverage ratio, though stable QoQ at 77%, is
lower than earlier levels of above 80% seen in FY10. Provisioning for NPA
was scaled up QoQ to | 555 crore from | 359 crore in Q2FY11 taking up
9MFY11 provision for NPA to | 1462 crore. Even though the bank’s
threshold limit is 2%, we are cautious due to rising slippages, credit costs
and aggressive business growth that may lead to asset quality concerns
later. We expect GNPA and NNPA at 2% and 0.6%, respectively, by FY12E.
2
nd
pension option, gratuity provisions ensure C/I ratio remains high…
C/I ratio continued to be high at 42.1% due to a 47% YoY increase in staff
costs as the bank provided | 235 crore and | 125 crore towards 2nd
pension option and gratuity liability. The total liability towards second
pension option is estimated to be | 3600 crore to be spread over five years.
Valuation
The bank reported healthy RoA and RoE of 1.3% and 22.4%, respectively,
this quarter. We estimate RoA of ~1.4% and RoE of ~22.5% by FY12E
riding high on sturdy business growth. Even though the core business
performance has been strong, we are concerned about the declining CASA,
rising costs of deposits and deteriorating asset quality, which has increased
credit costs for the bank and increases risk for future profitability. Hence, we
have valued the bank at 1.3x FY12E ABV at | 953.
Restructured assets mount up with a steady run rate...
Total restructured assets increased from | 13454 crore in Q2FY11 to |
14362 crore with the bank restructuring 69 accounts worth | 817 crore in
Q3FY11. Cumulative slippages from restructured assets amounted to | 1255
crore out of which | 486 crore slipped in to NPA in 9MFY11 (| 66 crore in
Q3FY11).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank: Core business strong, asset quality hinders…
The going seems to be good for PNB as business growth remained strong
at 26% YoY (6% QoQ) with advances growing 30% YoY to | 221225 crore
and deposits rising 23% to | 288873 crore with C/D ratio high at 77%.
This boosted NII by 45% YoY to | 3203 crore with NIM inching up 7 bps
QoQ to 4.13%. Other income grew 19% QoQ (flat YoY) to | 857 crore due
to higher trading, fee income and stronger recoveries. A 47% YoY jump in
staff costs due to pension and gratuity liability and 153% YoY (38% QoQ)
rise in provisions to | 714 crore on account of higher credit costs
impacted the bottomline as profit rose only 8% YoY (flat QoQ) to | 1090
crore. We estimate NIM will dip by 10-15 bps next quarter due to CASA
dip (declined 200 bps QoQ to 39%) and rising cost of deposits and expect
business momentum to continue with deposits and advances expanding
at 20% and 23% CAGR propelling profits by 18% CAGR over FY10-12E.
Asset quality deteriorates further, provisioning maintained...
GNPA shot up 13% QoQ to | 4541 crore (GNPA ratio up 12 bps QoQ to
2.03%) on account of slippages exceeding upgradations and recoveries
over 9MFY11. NNPA worsened 10% QoQ to | 1575 crore (NNPA ratio up 3
bps QoQ to 0.72%). Provision coverage ratio, though stable QoQ at 77%, is
lower than earlier levels of above 80% seen in FY10. Provisioning for NPA
was scaled up QoQ to | 555 crore from | 359 crore in Q2FY11 taking up
9MFY11 provision for NPA to | 1462 crore. Even though the bank’s
threshold limit is 2%, we are cautious due to rising slippages, credit costs
and aggressive business growth that may lead to asset quality concerns
later. We expect GNPA and NNPA at 2% and 0.6%, respectively, by FY12E.
2
nd
pension option, gratuity provisions ensure C/I ratio remains high…
C/I ratio continued to be high at 42.1% due to a 47% YoY increase in staff
costs as the bank provided | 235 crore and | 125 crore towards 2nd
pension option and gratuity liability. The total liability towards second
pension option is estimated to be | 3600 crore to be spread over five years.
Valuation
The bank reported healthy RoA and RoE of 1.3% and 22.4%, respectively,
this quarter. We estimate RoA of ~1.4% and RoE of ~22.5% by FY12E
riding high on sturdy business growth. Even though the core business
performance has been strong, we are concerned about the declining CASA,
rising costs of deposits and deteriorating asset quality, which has increased
credit costs for the bank and increases risk for future profitability. Hence, we
have valued the bank at 1.3x FY12E ABV at | 953.
Restructured assets mount up with a steady run rate...
Total restructured assets increased from | 13454 crore in Q2FY11 to |
14362 crore with the bank restructuring 69 accounts worth | 817 crore in
Q3FY11. Cumulative slippages from restructured assets amounted to | 1255
crore out of which | 486 crore slipped in to NPA in 9MFY11 (| 66 crore in
Q3FY11).
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