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Punjab National Bank
4Q: Earnings exactly in-line;
Buy for +25% upside potential
„4QFY11: Earnings exactly in-line with estimates
PNB reported earnings of Rs12bn (in-line), up 6% yoy driven by higher fees.
While topline was marginally below estimates (~4% below) driven by margin
erosion (5bps yoy; 22bps qoq), loan growth remained strong at 30% yoy. Loan
growth driven by infra. and corporate lending. What is encouraging is that PNB
de-grew its construction and comm. real estate exposures. CASA marginally
down qoq by 50bps to 39.2%. Core fee growth strong at 20% yoy. PNB has fully
provided for pension (retired and existing) in FY11 to the tune of Rs11.3bn
(Rs5.8bn for retired and Rs5.5bn for 2nd pension option). We have fine-tuned our
estimates.
While slippages have risen, asset quality is manageable
While PNB reported higher than est. slippages of Rs12.5bn in 4Q (vs. Rs10bn in
3Q), almost +40-45% of this was driven by slippages from restructured a/c’s.
Aggressive write-off’s in 4Q has led to headline gross NPLs coming down by 4%
qoq (at 1.8%), however net NPLs are up 29% qoq (at 0.9%). However, asset
quality remains manageable, with cover at +73%. Moreover, PNB has guided for
stronger recovery going forward. We still est. net NPLs to remain at <1.0% after
factoring in slippages at elevated levels (Rs41bn vs. Rs43bn in FY11).
Risk-return attractive; Buy for +25% upside potential
We estimate PNB’s earnings growth to sustain at +30% through FY12/13 driven
by operating leverage, but after factoring in credit cost at +75bps. Hence, we
maintain our PO (and Buy) of Rs1400, as risk-return remains attractive with stock
trading at 1.6x FY12 book, with RoEs of +24% (RoAs at 1.4% in FY12).
Price objective basis & risk
Punjab (PUJBF)
We like PNB for its ability to manage margins, asset quality (provisions coverage
at over +73%) and RoEs (+24-25%). On this basis, we reckon that risk-return
remains amongst the most favorable. Our PO of Rs1400 is pegged at 1.9x FY12E
adj. book (versus historical trading range of 1.6-2.1x) and at theoretical (Gordon)
multiples assuming RoE of 25pct and CoE at 14pct. Risks are higher exposure to
commercial real estate can lead to rise in NPLs and a sharp rise in interest rates
at sector level could lead to a slowdown in growth and earnings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank
4Q: Earnings exactly in-line;
Buy for +25% upside potential
„4QFY11: Earnings exactly in-line with estimates
PNB reported earnings of Rs12bn (in-line), up 6% yoy driven by higher fees.
While topline was marginally below estimates (~4% below) driven by margin
erosion (5bps yoy; 22bps qoq), loan growth remained strong at 30% yoy. Loan
growth driven by infra. and corporate lending. What is encouraging is that PNB
de-grew its construction and comm. real estate exposures. CASA marginally
down qoq by 50bps to 39.2%. Core fee growth strong at 20% yoy. PNB has fully
provided for pension (retired and existing) in FY11 to the tune of Rs11.3bn
(Rs5.8bn for retired and Rs5.5bn for 2nd pension option). We have fine-tuned our
estimates.
While slippages have risen, asset quality is manageable
While PNB reported higher than est. slippages of Rs12.5bn in 4Q (vs. Rs10bn in
3Q), almost +40-45% of this was driven by slippages from restructured a/c’s.
Aggressive write-off’s in 4Q has led to headline gross NPLs coming down by 4%
qoq (at 1.8%), however net NPLs are up 29% qoq (at 0.9%). However, asset
quality remains manageable, with cover at +73%. Moreover, PNB has guided for
stronger recovery going forward. We still est. net NPLs to remain at <1.0% after
factoring in slippages at elevated levels (Rs41bn vs. Rs43bn in FY11).
Risk-return attractive; Buy for +25% upside potential
We estimate PNB’s earnings growth to sustain at +30% through FY12/13 driven
by operating leverage, but after factoring in credit cost at +75bps. Hence, we
maintain our PO (and Buy) of Rs1400, as risk-return remains attractive with stock
trading at 1.6x FY12 book, with RoEs of +24% (RoAs at 1.4% in FY12).
Price objective basis & risk
Punjab (PUJBF)
We like PNB for its ability to manage margins, asset quality (provisions coverage
at over +73%) and RoEs (+24-25%). On this basis, we reckon that risk-return
remains amongst the most favorable. Our PO of Rs1400 is pegged at 1.9x FY12E
adj. book (versus historical trading range of 1.6-2.1x) and at theoretical (Gordon)
multiples assuming RoE of 25pct and CoE at 14pct. Risks are higher exposure to
commercial real estate can lead to rise in NPLs and a sharp rise in interest rates
at sector level could lead to a slowdown in growth and earnings
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