PNB's PPOP performance continues to get weaker (7% YoY contraction). However,
B/S consolidation and recovery efforts is aiding asset quality though delinquencies
continue to remain high. Despite just 4% PPOP growth and elevated credit costs
expectations, we expect ~1% ROAs (higher than peers) and with undemanding
valuations of 0.8x Sep‐14 book, we maintain ‘BUY’ with PT of Rs900/share.
However, re‐rating will be restricted, given lower ROEs v/s history + PPOP risks.
! Core PPOP performance gets weaker: PNB's core PPOP contracted 7% YoY, with
just 3% loan growth and ~15% contraction in core fees. Key metrics: (1) NIM at
3.5% was flat QoQ but management expressed near-term concerns and guided
to 3.35% margins v/s 3.5% in FY13 considering falling rate environment (2) In its
effort to consolidate, domestic loan growth was just 3%; positive for credit but
our FY14 NII is down 5% (3) Non-interest income was aided by treasury income
of Rs1.9bn adjusted for which core fees contracted 3% YoY. With weak guidance
on NIMs and risks to B/S and fee income growth, we expect PPOP challenges to
continue and expect just 4% PPOP growth in FY14.
! Asset quality‐Strong momentum in Recoveries/upgrades continue: PNB
reported better-than-expected Gross NPAs, with Rs26bn of upgrades/recoveries
in line with management guidance and they expect strong momentum to
continue. Incremental slippages continued to remain high at 3.8% and
restructuring of ~Rs35bn (excl. SEBs) indicates that stress continues in the
system. Slow B/S growth will help and thus, we factor in credit to remain
elevated at ~115bps v/s 140bps.
! ROAs of ~1% despite PPOP challenges, Maintain ‘BUY’: Despite slow PPOP
growth and ~115bps of credit costs, we expect ROAs of ~1% in FY14 (better than
peers) and hence, maintain ‘BUY’ as current valuations are undemanding at 0.8x
Sep-14 book. However, lower ROEs at ~15.5% v/s +20% historically + operational
challenges will limit significant multiple expansion. PT of Rs900/share (0.93x
Sep-14 book).
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B/S consolidation and recovery efforts is aiding asset quality though delinquencies
continue to remain high. Despite just 4% PPOP growth and elevated credit costs
expectations, we expect ~1% ROAs (higher than peers) and with undemanding
valuations of 0.8x Sep‐14 book, we maintain ‘BUY’ with PT of Rs900/share.
However, re‐rating will be restricted, given lower ROEs v/s history + PPOP risks.
! Core PPOP performance gets weaker: PNB's core PPOP contracted 7% YoY, with
just 3% loan growth and ~15% contraction in core fees. Key metrics: (1) NIM at
3.5% was flat QoQ but management expressed near-term concerns and guided
to 3.35% margins v/s 3.5% in FY13 considering falling rate environment (2) In its
effort to consolidate, domestic loan growth was just 3%; positive for credit but
our FY14 NII is down 5% (3) Non-interest income was aided by treasury income
of Rs1.9bn adjusted for which core fees contracted 3% YoY. With weak guidance
on NIMs and risks to B/S and fee income growth, we expect PPOP challenges to
continue and expect just 4% PPOP growth in FY14.
! Asset quality‐Strong momentum in Recoveries/upgrades continue: PNB
reported better-than-expected Gross NPAs, with Rs26bn of upgrades/recoveries
in line with management guidance and they expect strong momentum to
continue. Incremental slippages continued to remain high at 3.8% and
restructuring of ~Rs35bn (excl. SEBs) indicates that stress continues in the
system. Slow B/S growth will help and thus, we factor in credit to remain
elevated at ~115bps v/s 140bps.
! ROAs of ~1% despite PPOP challenges, Maintain ‘BUY’: Despite slow PPOP
growth and ~115bps of credit costs, we expect ROAs of ~1% in FY14 (better than
peers) and hence, maintain ‘BUY’ as current valuations are undemanding at 0.8x
Sep-14 book. However, lower ROEs at ~15.5% v/s +20% historically + operational
challenges will limit significant multiple expansion. PT of Rs900/share (0.93x
Sep-14 book).
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