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Action: Initiate with a Neutral rating and a TP of INR1,070
We expect a significant spike in loan loss provisions (LLPs) and a
contraction in NIM for FY13F, which should continue to weigh on the stock
despite the recent price correction. Initiate with Neutral and INR1,070 TP.
Loan loss provisions likely to shoot up to 1.2% by FY13F
We expect a significant increase in LLPs on a higher proportion of
impaired loan book and higher exposure to power and other infrastructure
sectors. We expect an impaired loan ratio of 8.5% and power sector
exposure of 6% to lead to LLPs of 1.2% in FY13F, from 1% in 1Q FY12.
We expect NIM compression & moderating loan growth
We expect NIM to contract in FY12 on account of sluggish CASA
momentum and the impact of high proportion of term deposits garnered
over the past few quarters at peak rates. We expect NIMs to ease to 3.6%
for FY12F, from 3.96% in FY11. We expect loan growth of 19% by FY13F.
Valuation/Catalyst: Risks & rewards evenly balanced
Valuation: Our TP of INR1,070 implies 1.3x FY13F ABV and 7.0x FY13F
EPS for an FY13F ROA of 1% and adjusted ROE of 19.5%. PNB is
currently trading at 1.1x FY13F ABV and 6.1x FY13F EPS.
Catalysts: Accelerated monetary policy easing, policy intervention to
resolve power sector bottlenecks like fuel availability, and SEB (state
electricity board) financial health are the key upside catalysts.
Valuation
Initiate with NEUTRAL; TP of INR1,070
We expect PNB to grow its loan book at a CAGR of 19% over FY11-13. We expect this
to drive a revenue and PAT CAGR of 22% and 21% respectively over this period after
factoring in decline in margins from 3.9% in FY11 to 3.6% in FY12 and staying flat at that
level for FY13. We expect PNB to record ROA and adjusted ROE of 1% and 19.5%
respectively for FY13. PNB currently trades at 1.1x FY13F ABV, one standard deviation
below its historical mean of 1.4x one-year forward ABV. At our TP of INR1070, the
implied P/ABV for FY13F is 1.3x. We have arrived at our target price of INR1070 using a
three-stage residual-income valuation method that uses the following assumptions:
• We estimate loan book growth of 18.3% and 19.1% for FY12 and FY13, versus the
management guidance of 18% over FY12-13.
• We expect fee income to grow at 17.6% in FY12F and19.8% in FY13F.
• We expect NIM to decline to 3.6% for FY12 and FY13 respectively from 3.84% for
1QFY12.
• On the bad loan front, we are building in a GNPL ratio of 2.49% in FY12F and 2.82% in
FY13F versus 1.79% in FY11 (1.99% in F1Q12). NNPL ratio is 0.89% in FY12F and
0.88% in FY13F.
• PNB currently has a capital adequacy ratio of 12.4% with about 8.5% in tier-1. We are
not building any dilution from capital issuance into our model.
• We expect the cost-income ratio to be at 40% in FY13F from 41.1% in F1Q12F. We
expect the cost-asset ratio to drop to 1.73% for FY13F from 1.89% in FY11.
• We expect a pro forma diluted EPS of INR 137.6 for FY12 and INR 153.4 for FY13. At
1.1x our FY13F ABV and 6.1x our FY13F diluted EPS, we believe the current valuation
balances the expected risks and rewards from the stock. Our target price of INR1070
implies 1.3x our FY13 adjusted BV (adjusted ROE of 19.5% for FY13F) and 7.0x our
FY13F EPS.
Key catalysts: Accelerated monetary policy easing, policy intervention to resolve power
sector bottlenecks like fuel availability, and SEB (state electricity board) financial health
are key upside catalysts.
Key risks: RBI persisting with a tight monetary policy, a policy logjam with respect to
power-sector bottlenecks and continued global macro uncertainty are key downside
risks.
Residual income valuation
We have built in the following assumptions into our three-stage residual-income model:
• We expect PNB to post 20.3% CAGR for its average interest-earning assets over
FY11-14. We expect this to be followed by a CAGR of 11.6% in FY14-20 and a terminal
growth rate of 4% beyond that.
• We have modeled for average ROE of 15.1% over FY12-20 and a 14% terminal value
ROE. Our discount rates range from 14.7% (current cost of equity) for FY11-14, 12.5%
for FY14-20 and 10% terminal rate.
• Our book value estimates don’t factor any equity dilution.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Action: Initiate with a Neutral rating and a TP of INR1,070
We expect a significant spike in loan loss provisions (LLPs) and a
contraction in NIM for FY13F, which should continue to weigh on the stock
despite the recent price correction. Initiate with Neutral and INR1,070 TP.
Loan loss provisions likely to shoot up to 1.2% by FY13F
We expect a significant increase in LLPs on a higher proportion of
impaired loan book and higher exposure to power and other infrastructure
sectors. We expect an impaired loan ratio of 8.5% and power sector
exposure of 6% to lead to LLPs of 1.2% in FY13F, from 1% in 1Q FY12.
We expect NIM compression & moderating loan growth
We expect NIM to contract in FY12 on account of sluggish CASA
momentum and the impact of high proportion of term deposits garnered
over the past few quarters at peak rates. We expect NIMs to ease to 3.6%
for FY12F, from 3.96% in FY11. We expect loan growth of 19% by FY13F.
Valuation/Catalyst: Risks & rewards evenly balanced
Valuation: Our TP of INR1,070 implies 1.3x FY13F ABV and 7.0x FY13F
EPS for an FY13F ROA of 1% and adjusted ROE of 19.5%. PNB is
currently trading at 1.1x FY13F ABV and 6.1x FY13F EPS.
Catalysts: Accelerated monetary policy easing, policy intervention to
resolve power sector bottlenecks like fuel availability, and SEB (state
electricity board) financial health are the key upside catalysts.
Valuation
Initiate with NEUTRAL; TP of INR1,070
We expect PNB to grow its loan book at a CAGR of 19% over FY11-13. We expect this
to drive a revenue and PAT CAGR of 22% and 21% respectively over this period after
factoring in decline in margins from 3.9% in FY11 to 3.6% in FY12 and staying flat at that
level for FY13. We expect PNB to record ROA and adjusted ROE of 1% and 19.5%
respectively for FY13. PNB currently trades at 1.1x FY13F ABV, one standard deviation
below its historical mean of 1.4x one-year forward ABV. At our TP of INR1070, the
implied P/ABV for FY13F is 1.3x. We have arrived at our target price of INR1070 using a
three-stage residual-income valuation method that uses the following assumptions:
• We estimate loan book growth of 18.3% and 19.1% for FY12 and FY13, versus the
management guidance of 18% over FY12-13.
• We expect fee income to grow at 17.6% in FY12F and19.8% in FY13F.
• We expect NIM to decline to 3.6% for FY12 and FY13 respectively from 3.84% for
1QFY12.
• On the bad loan front, we are building in a GNPL ratio of 2.49% in FY12F and 2.82% in
FY13F versus 1.79% in FY11 (1.99% in F1Q12). NNPL ratio is 0.89% in FY12F and
0.88% in FY13F.
• PNB currently has a capital adequacy ratio of 12.4% with about 8.5% in tier-1. We are
not building any dilution from capital issuance into our model.
• We expect the cost-income ratio to be at 40% in FY13F from 41.1% in F1Q12F. We
expect the cost-asset ratio to drop to 1.73% for FY13F from 1.89% in FY11.
• We expect a pro forma diluted EPS of INR 137.6 for FY12 and INR 153.4 for FY13. At
1.1x our FY13F ABV and 6.1x our FY13F diluted EPS, we believe the current valuation
balances the expected risks and rewards from the stock. Our target price of INR1070
implies 1.3x our FY13 adjusted BV (adjusted ROE of 19.5% for FY13F) and 7.0x our
FY13F EPS.
Key catalysts: Accelerated monetary policy easing, policy intervention to resolve power
sector bottlenecks like fuel availability, and SEB (state electricity board) financial health
are key upside catalysts.
Key risks: RBI persisting with a tight monetary policy, a policy logjam with respect to
power-sector bottlenecks and continued global macro uncertainty are key downside
risks.
Residual income valuation
We have built in the following assumptions into our three-stage residual-income model:
• We expect PNB to post 20.3% CAGR for its average interest-earning assets over
FY11-14. We expect this to be followed by a CAGR of 11.6% in FY14-20 and a terminal
growth rate of 4% beyond that.
• We have modeled for average ROE of 15.1% over FY12-20 and a 14% terminal value
ROE. Our discount rates range from 14.7% (current cost of equity) for FY11-14, 12.5%
for FY14-20 and 10% terminal rate.
• Our book value estimates don’t factor any equity dilution.
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