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India Equity Research Reports, IPO and Stock News
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Investment thesis
We assume coverage on Punjab National Bank (PNB) with a “BUY” rating. Our 12-month target price of INR 1,191 indicates 24% upside potential.
→ PNB is the second bank which fulfills our criteria on several fronts: a) high CASA ratio of 40%, b) focus on NIMs (3.8% in 1QFY12) and c) high provision coverage ratio at 75%.
→ We expect earnings CAGR growth of 21% between FY12E-FY13E and an average RoE of 20%, vs. 18% EPS CAGR and 21% average RoE since FY2004.
→ GNPL ratios have been an issue for PNB, due to their higher focus on MSME portfolio which results to higher yield on credit. We believe earnings for PNB should be able to take care of the slippages. We have estimated 12% slippage each year over next 2 years.
Valuation
PNB is currently trading at 1.1x FY13E book value and 6.4x FY13E EPS. The stock is trading at the median level of its own historical range, and at a premium to BoI and UNBK. We assume coverage with a “BUY” recommendation and a 3 stage DDM based weighted target price of INR 1,191. Our 3-stage DDM model assumes a discount rate of 14.5% and a dividend payout ratio of 22% over FY2012-14E. Earnings growth, improving asset quality and higher RoE, we believe, will provide the catalyst for the stock price performance.
Key risks
Key risks to our target price and investment view are
→ Higher than expected slippages and SME cycle negative due to more than expected macro slowdown.
→ Global turmoil resulting to safe flight of capital resulting to margin compression and
→ Margin compression if RBI continues with its tightening process beyond September quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment thesis
We assume coverage on Punjab National Bank (PNB) with a “BUY” rating. Our 12-month target price of INR 1,191 indicates 24% upside potential.
→ PNB is the second bank which fulfills our criteria on several fronts: a) high CASA ratio of 40%, b) focus on NIMs (3.8% in 1QFY12) and c) high provision coverage ratio at 75%.
→ We expect earnings CAGR growth of 21% between FY12E-FY13E and an average RoE of 20%, vs. 18% EPS CAGR and 21% average RoE since FY2004.
→ GNPL ratios have been an issue for PNB, due to their higher focus on MSME portfolio which results to higher yield on credit. We believe earnings for PNB should be able to take care of the slippages. We have estimated 12% slippage each year over next 2 years.
Valuation
PNB is currently trading at 1.1x FY13E book value and 6.4x FY13E EPS. The stock is trading at the median level of its own historical range, and at a premium to BoI and UNBK. We assume coverage with a “BUY” recommendation and a 3 stage DDM based weighted target price of INR 1,191. Our 3-stage DDM model assumes a discount rate of 14.5% and a dividend payout ratio of 22% over FY2012-14E. Earnings growth, improving asset quality and higher RoE, we believe, will provide the catalyst for the stock price performance.
Key risks
Key risks to our target price and investment view are
→ Higher than expected slippages and SME cycle negative due to more than expected macro slowdown.
→ Global turmoil resulting to safe flight of capital resulting to margin compression and
→ Margin compression if RBI continues with its tightening process beyond September quarter.
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