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Punjab National Bank
Gradual recovery in asset quality: Higher deliquencies has been a concern over the
last 3 quarters. But management believes that risks of lumpy delinquencies are
limited and slippage levels would improve to <1.5%, though SME slippage and high
growth in the Infra space over the last 1-2 yrs remains a concern. We expect asset
quality to gradually improve but continue to factor in ~80-85bps of credit costs over
FY11-13E for PNB.
Margins to moderate but aggressive lending rate hikes taken to help: Though
funding costs would pressure margins with repricing of bulk deposits and increase in
deposit rates, PNB has increased lending rates by 150-200bps and that would help
restrict margin pressure. We factor in ~20bps of margin contraction in FY12 v/s
FY11 with large part of the contraction expected over next 6-9 mnts.
Maintain Overweight, Top PSU pick: We revise earnings by 4-6% as we factor in
lower margin and marginally higher credit costs and revise down our Mar-12 PT to
Rs1350/share (Sep-11 PT of Rs1500/share earlier) based on 2 stage Gordon growth
model implying 1.5x FY13 book. PNB has under performed peers by ~10 % over last
3mnts and valuations are relatively attractive now - trading inline with peers and
~8% discount to BOB. Improving asset quality over next 6-9mnts would be likely
catalysts. Risks remain from an economic slowdown which would slow asset quality
recovery.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank
Gradual recovery in asset quality: Higher deliquencies has been a concern over the
last 3 quarters. But management believes that risks of lumpy delinquencies are
limited and slippage levels would improve to <1.5%, though SME slippage and high
growth in the Infra space over the last 1-2 yrs remains a concern. We expect asset
quality to gradually improve but continue to factor in ~80-85bps of credit costs over
FY11-13E for PNB.
Margins to moderate but aggressive lending rate hikes taken to help: Though
funding costs would pressure margins with repricing of bulk deposits and increase in
deposit rates, PNB has increased lending rates by 150-200bps and that would help
restrict margin pressure. We factor in ~20bps of margin contraction in FY12 v/s
FY11 with large part of the contraction expected over next 6-9 mnts.
Maintain Overweight, Top PSU pick: We revise earnings by 4-6% as we factor in
lower margin and marginally higher credit costs and revise down our Mar-12 PT to
Rs1350/share (Sep-11 PT of Rs1500/share earlier) based on 2 stage Gordon growth
model implying 1.5x FY13 book. PNB has under performed peers by ~10 % over last
3mnts and valuations are relatively attractive now - trading inline with peers and
~8% discount to BOB. Improving asset quality over next 6-9mnts would be likely
catalysts. Risks remain from an economic slowdown which would slow asset quality
recovery.
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