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Punjab National Bank |
Strong earnings; slippages trending down |
BUY
CMP: Rs 1,310 Target Price: Rs 1,500
n PNB’s Q2FY11 NII at Rs29.8bn better than expectations driven by 6% qoq growth in advances and 12bps expansion in NIMs. Net profit at Rs10.7bn in line with expectations
n Slippages surprise positively at Rs9.1bn lower than Rs12.1bn reported in Q1FY11. However, gross NPAs rise due to lower recoveries. Provision cover strong at 77% (RBI norms)
n Other positives in the result – (1) CASA at 40.6% despite strong growth in balance sheet (2) provisions done at 65% on net incremental slippages and (3) robust fee income growth
n Valuations not unreasonable at 2.2x FY11E/1.7x FY12E ABV. Continue BUY rating with TP of Rs1500
Strong growth in NII…
PNB’s NII for Q2FY11 has grown by 13.7% qoq to Rs29.8bn. The strong growth in NII
was driven by 6% qoq growth in advances and 12bps expansion NIMs
… As NIMs expands qoq – positive surprise
We are positively surprised by 12bps qoq expansion in PNB’s Q2FY11 NIMs as the
NIMs are already the highest in the industry. The expansion in NIMs was driven by
30bps expansion in yield on advances and stable cost of deposits.
We expect the NIMs to come down in Q3FY11 as the bank has revised the deposit
rates during Q2FY11, the effect of which will reflect in next quarter. For FY11, we have
built in NIMs assumption of 3.5%.
Capital adequacy remains comfortable
The capital adequacy remained comfortable during the quarter with tier I CAR at 9.06%
(including profit of H1FY11). The total CAR (including H1FY11 profit) stood at 13.6%.
Valuations and view
The stock is currently quoting at 2.2x FY11E ABV and 1.7x FY11E ABV with attractive
RoEs of 23.5%. We do not find the valuations unreasonable looking at strong returns
profile. We have already factored in slippage rate of 160bps and provision cost of 90bps in
our numbers. We maintain our BUY rating on the stock with price target of Rs1500 (2x
FY12E ABV).
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