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Punjab National Bank
Overweight
PNBK.BO, PNB IN
Annual report analysis: Risks remain but valuations reasonable
• We maintain our Overweight recommendation post our annual report
analysis as valuations are undemanding relative to high ROEs.
Moving to optimistic assumptions on pensions and aggressive powerrelated lending are our key concerns for PNB like other PSU names.
• Balance sheet highlights: CASA growth at 18% lagged overall deposit
growth of ~25.5% in FY11, leading to the CASA ratio coming off by
~200bp, but surprisingly the concentration of deposits with top-20
depositors came off to 5% from 8.7% in FY10. We factor in margins to
contract by ~30bp in FY12 as full impact of deposit re pricing kicks in.
• Pensions: Optimistic, from being relatively conservative: PNB
decreased wage inflation assumption from 6.5% in FY10 to 5.0% in
FY10 and increased discount rate to ~8.5% from 7.9% in FY10.
Although PNB’s assumptions were more conservative than those of
other PSU banks in FY10, the change in assumptions in FY11 brings
PNB pension assumptions in line with those of other PSU banks,
which we have been saying we believe to be optimistic. We expect the
pension gap of Rs21B to be amortized over FY12-15.
• Asset quality: Sharp increase in Gross NPAs in Industry segment (up
from 0.9% to 1.7% in FY11) masked improvement across other
segments. Due to high slippages and write off, provision coverage ex
technical write offs was down to 53.5% from 69% in FY11. A 6% y/y
contraction in commercial estate exposure is positive, but power
exposure growth remains a concern with ~82% y/y growth in FY11,
with power constituting ~10% of total exposure now.
• Maintain Overweight: Asset quality has been volatile but we expect
ROAs to remain high at 1.3-1.35% over FY11-13 in spite of high credit
costs. Valuations at 1.4x FY12 look reasonable relative to high ROEs.
Slowdown in the economy delaying asset quality revival is a key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank
Overweight
PNBK.BO, PNB IN
Annual report analysis: Risks remain but valuations reasonable
• We maintain our Overweight recommendation post our annual report
analysis as valuations are undemanding relative to high ROEs.
Moving to optimistic assumptions on pensions and aggressive powerrelated lending are our key concerns for PNB like other PSU names.
• Balance sheet highlights: CASA growth at 18% lagged overall deposit
growth of ~25.5% in FY11, leading to the CASA ratio coming off by
~200bp, but surprisingly the concentration of deposits with top-20
depositors came off to 5% from 8.7% in FY10. We factor in margins to
contract by ~30bp in FY12 as full impact of deposit re pricing kicks in.
• Pensions: Optimistic, from being relatively conservative: PNB
decreased wage inflation assumption from 6.5% in FY10 to 5.0% in
FY10 and increased discount rate to ~8.5% from 7.9% in FY10.
Although PNB’s assumptions were more conservative than those of
other PSU banks in FY10, the change in assumptions in FY11 brings
PNB pension assumptions in line with those of other PSU banks,
which we have been saying we believe to be optimistic. We expect the
pension gap of Rs21B to be amortized over FY12-15.
• Asset quality: Sharp increase in Gross NPAs in Industry segment (up
from 0.9% to 1.7% in FY11) masked improvement across other
segments. Due to high slippages and write off, provision coverage ex
technical write offs was down to 53.5% from 69% in FY11. A 6% y/y
contraction in commercial estate exposure is positive, but power
exposure growth remains a concern with ~82% y/y growth in FY11,
with power constituting ~10% of total exposure now.
• Maintain Overweight: Asset quality has been volatile but we expect
ROAs to remain high at 1.3-1.35% over FY11-13 in spite of high credit
costs. Valuations at 1.4x FY12 look reasonable relative to high ROEs.
Slowdown in the economy delaying asset quality revival is a key risk.
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