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Asset quality pressures
During 1QFY12, PNB reported net profit of Rs11bn (up 3% YoY), slightly
lower than our estimates. PNB continues to deliver healthy topline growth
(NII up 19% YoY) driven by healthy loan growth and margin resilience
that is supported by a strong CASA franchise. However, it continues to
disappoint on asset quality trends and for past seven quarters its fresh
delinquency ratio has been high in the range of 2-3% of past year’s loans.
We lower earning estimates for FY12-13 by 3% and target price to
Rs1,200 based on 1.5x FY13 adjusted PB. Maintain O-PF.
Loan growth and stable margins support topline growth
PNB’s NII growth of 19% YoY (3% QoQ) was encouraging and largely accrued
from resilience in its margins at 3.8%. Loan growth has moderated from the
~30% levels in the recent quarters to 23% YoY (flat QoQ) due to moderation
of growth in loans to large industries. More importantly, PNB’s CASA growth of
16% YoY is higher than most PSU banks and will support its higher margins
and loan growth. While fee income grew by a healthy 20%, contribution from
treasury gains fell from 7% of PBT last year to -5% in 1QFY12.
Asset quality continues to disappoint
PNB’s asset quality trends continue to be an area of concern as for the past 7
quarters it has reported delinquency ratio of 2-3% of past year’s loans- 2.4%
in 1QFY12. As a result of high slippages, partly offset by recoveries, gross
NPLs increased by 35% YoY (12% QoQ) and provisioning pressure is weighing
on the profitability. PNB also has a large restructured loan book (6.5% of
loans) and this increased by 22% YoY/ 4% QoQ including some restructuring
in the infrastructure sector. Slippages in 1Q may also include some NPLs upon
transition to the system based NPL recognition. Additionally, provisions also
include some one-time provisions upon change in RBI’s provisioning norms on
NPLs and restructured loans.
Maintain O-PF
We lower earning estimates for FY12-13 by ~3% due to higher than expected
operating costs and expect 18% Cagr in earnings over FY11-14 driven by
similar growth in loans. With tier I ratio of 8.5%, PNB may need to raise fresh
capital to support growth. While PNB’s reported profitability ratios are healthy,
an improvement in asset quality trends will be critical to any re-rating. We
lower our price target to Rs1,200 based on 1.5x FY13 adjusted PB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asset quality pressures
During 1QFY12, PNB reported net profit of Rs11bn (up 3% YoY), slightly
lower than our estimates. PNB continues to deliver healthy topline growth
(NII up 19% YoY) driven by healthy loan growth and margin resilience
that is supported by a strong CASA franchise. However, it continues to
disappoint on asset quality trends and for past seven quarters its fresh
delinquency ratio has been high in the range of 2-3% of past year’s loans.
We lower earning estimates for FY12-13 by 3% and target price to
Rs1,200 based on 1.5x FY13 adjusted PB. Maintain O-PF.
Loan growth and stable margins support topline growth
PNB’s NII growth of 19% YoY (3% QoQ) was encouraging and largely accrued
from resilience in its margins at 3.8%. Loan growth has moderated from the
~30% levels in the recent quarters to 23% YoY (flat QoQ) due to moderation
of growth in loans to large industries. More importantly, PNB’s CASA growth of
16% YoY is higher than most PSU banks and will support its higher margins
and loan growth. While fee income grew by a healthy 20%, contribution from
treasury gains fell from 7% of PBT last year to -5% in 1QFY12.
Asset quality continues to disappoint
PNB’s asset quality trends continue to be an area of concern as for the past 7
quarters it has reported delinquency ratio of 2-3% of past year’s loans- 2.4%
in 1QFY12. As a result of high slippages, partly offset by recoveries, gross
NPLs increased by 35% YoY (12% QoQ) and provisioning pressure is weighing
on the profitability. PNB also has a large restructured loan book (6.5% of
loans) and this increased by 22% YoY/ 4% QoQ including some restructuring
in the infrastructure sector. Slippages in 1Q may also include some NPLs upon
transition to the system based NPL recognition. Additionally, provisions also
include some one-time provisions upon change in RBI’s provisioning norms on
NPLs and restructured loans.
Maintain O-PF
We lower earning estimates for FY12-13 by ~3% due to higher than expected
operating costs and expect 18% Cagr in earnings over FY11-14 driven by
similar growth in loans. With tier I ratio of 8.5%, PNB may need to raise fresh
capital to support growth. While PNB’s reported profitability ratios are healthy,
an improvement in asset quality trends will be critical to any re-rating. We
lower our price target to Rs1,200 based on 1.5x FY13 adjusted PB.
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