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UBS Investment Research
Punjab National Bank
M ixed quarter
Event: Q1 largely in line with UBS-e
Net profit of Rs11bn (+3% y/y) was in line with UBS-e of Rs10.9bn. NII growth of
19% y/y, was better than expected as margin dipped only 7bps q/q to 3.84%. Other
highlights: 1) loans remained flat sequentially while grew 23% y/y, 2) Staff cost
(pension) was higher than expected, 3) gross NPA increased 21bp to 2% with
stable coverage at 74%, 4) Acquired 30% stake in Metlife insurance 5) Yield on
investments increased by 50bps q/q though duration of book was unchanged.
Impact: Raising Fee, LLP and staff costs
While we maintain our loan growth estimate 18% CAGR over FY12-13, we raise
Fee growth estimate to 17% CAGR in FY12-13 (from 10%) due to new life
insurance JV and better fee income in Q1. We also raised staff cost by 9%/3% in
FY12/13. Moreover, we have raised LLP to 95 bps in FY12 and 100bps in FY13
(from 90bps).
Action: Cutting estimates by 4%/5%
Consequent to above changes we cut earnings by 4%/5% in FY12/13. Since the
bank has yet to move loans upto Rs1 mn to system based NPL recognition, we
expect margins to fall (by 20bps) and further NPL addition in Q2. Despite ~20%
ROE, given the rising asset quality risks, we expect limited upside from the stock.
Valuation: Maintain Neutral, PT Rs1200
We are rolling over to mid FY13 and value the stock using residual income method
at Rs 1200 which implies 1.3x FY13 book and 6.6x FY13 earnings.
Punjab National Bank
Punjab National Bank is the third largest nationalised bank in India,
predominantly focused on the northern states. The bank had a network of 4,750
branches, 2,455 ATMs and 42 million customers as of September 2009.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Punjab National Bank
M ixed quarter
Event: Q1 largely in line with UBS-e
Net profit of Rs11bn (+3% y/y) was in line with UBS-e of Rs10.9bn. NII growth of
19% y/y, was better than expected as margin dipped only 7bps q/q to 3.84%. Other
highlights: 1) loans remained flat sequentially while grew 23% y/y, 2) Staff cost
(pension) was higher than expected, 3) gross NPA increased 21bp to 2% with
stable coverage at 74%, 4) Acquired 30% stake in Metlife insurance 5) Yield on
investments increased by 50bps q/q though duration of book was unchanged.
Impact: Raising Fee, LLP and staff costs
While we maintain our loan growth estimate 18% CAGR over FY12-13, we raise
Fee growth estimate to 17% CAGR in FY12-13 (from 10%) due to new life
insurance JV and better fee income in Q1. We also raised staff cost by 9%/3% in
FY12/13. Moreover, we have raised LLP to 95 bps in FY12 and 100bps in FY13
(from 90bps).
Action: Cutting estimates by 4%/5%
Consequent to above changes we cut earnings by 4%/5% in FY12/13. Since the
bank has yet to move loans upto Rs1 mn to system based NPL recognition, we
expect margins to fall (by 20bps) and further NPL addition in Q2. Despite ~20%
ROE, given the rising asset quality risks, we expect limited upside from the stock.
Valuation: Maintain Neutral, PT Rs1200
We are rolling over to mid FY13 and value the stock using residual income method
at Rs 1200 which implies 1.3x FY13 book and 6.6x FY13 earnings.
Punjab National Bank
Punjab National Bank is the third largest nationalised bank in India,
predominantly focused on the northern states. The bank had a network of 4,750
branches, 2,455 ATMs and 42 million customers as of September 2009.
Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
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