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FY11 core earnings remained strong but increased slippages are a concern. The level of
PNB's standard restructured loans, at 5.5% of loans, remains higher than its peers'. A sharp
economic downturn could accentuate asset quality concerns for PNB, but we maintain our
Buy rating due to relatively strong ROEs and ROAs.
4QFY11: NII below estimates; slippages remain high
The 4QFY11 net interest income (NII) rose 22% yoy (-5% qoq) on 30% yoy loan growth
(+9% qoq). The reported 4QFY11 net interest margin (NIM) fell 5bp yoy to 3.91% (down
22bp qoq). Treasury gains were 3% of PBT in 4QFY11 (4.6% in FY11 vs 13.6% in FY10).
The total second pension option liability is Rs33.4bn: Rs5.8bn of which pertains to retired
employees and was charged off in FY11. Of the remaining Rs27.6bn, pertaining to existing
employees, the bank set aside provisions of Rs5.5bn (one fifth) in FY11. The gratuity liability
was Rs5.7bn, of which Rs1.2bn (one fifth) was provisioned for in FY11. Slippages remain
high at 67bp of loans on a one year lag basis in 4QFY11 (about 190bp in 9MFY11).
However, gross NPLs fell qoq due to significant write-offs in 4QFY11.
Asset quality concerns persist
On a full year basis, slippages accounted for 200bp of average loans in FY11 vs 170bp in FY10.
However, the level of reported gross NPLs rose about 10bp due to increased write offs (70bp of
loans in FY11 compared to 50bp in FY10). Standard restructured assets were 5.5% of loans as of
March 2011, which remains high relative to the c3-3.5% average of Indian banks.
Higher credit cost pulls down ROA by 10bp in FY11
The FY11 ROA fell about 10bp yoy to 1.3%. NII to average assets was up 30bp yoy, offset by
lower fees and treasury gains of about 20bp. Operating costs to assets increased 10bp. Thus, at
the operating profit level, ROAs were largely stable. Provision for bad loans increased yoy by
about 20bp while the tax rate remained largely stable.
No material change in estimates: Buy maintained
We cut our TP to Rs1,350 mainly due to the inclusion of our FY14F earnings with lower average
ROEs compared to our prior estimates. We maintain our Buy largely on account of strong ROEs
and ROAs (average 22-23% and 1.3%, respectively over FY12-14F).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY11 core earnings remained strong but increased slippages are a concern. The level of
PNB's standard restructured loans, at 5.5% of loans, remains higher than its peers'. A sharp
economic downturn could accentuate asset quality concerns for PNB, but we maintain our
Buy rating due to relatively strong ROEs and ROAs.
4QFY11: NII below estimates; slippages remain high
The 4QFY11 net interest income (NII) rose 22% yoy (-5% qoq) on 30% yoy loan growth
(+9% qoq). The reported 4QFY11 net interest margin (NIM) fell 5bp yoy to 3.91% (down
22bp qoq). Treasury gains were 3% of PBT in 4QFY11 (4.6% in FY11 vs 13.6% in FY10).
The total second pension option liability is Rs33.4bn: Rs5.8bn of which pertains to retired
employees and was charged off in FY11. Of the remaining Rs27.6bn, pertaining to existing
employees, the bank set aside provisions of Rs5.5bn (one fifth) in FY11. The gratuity liability
was Rs5.7bn, of which Rs1.2bn (one fifth) was provisioned for in FY11. Slippages remain
high at 67bp of loans on a one year lag basis in 4QFY11 (about 190bp in 9MFY11).
However, gross NPLs fell qoq due to significant write-offs in 4QFY11.
Asset quality concerns persist
On a full year basis, slippages accounted for 200bp of average loans in FY11 vs 170bp in FY10.
However, the level of reported gross NPLs rose about 10bp due to increased write offs (70bp of
loans in FY11 compared to 50bp in FY10). Standard restructured assets were 5.5% of loans as of
March 2011, which remains high relative to the c3-3.5% average of Indian banks.
Higher credit cost pulls down ROA by 10bp in FY11
The FY11 ROA fell about 10bp yoy to 1.3%. NII to average assets was up 30bp yoy, offset by
lower fees and treasury gains of about 20bp. Operating costs to assets increased 10bp. Thus, at
the operating profit level, ROAs were largely stable. Provision for bad loans increased yoy by
about 20bp while the tax rate remained largely stable.
No material change in estimates: Buy maintained
We cut our TP to Rs1,350 mainly due to the inclusion of our FY14F earnings with lower average
ROEs compared to our prior estimates. We maintain our Buy largely on account of strong ROEs
and ROAs (average 22-23% and 1.3%, respectively over FY12-14F).
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