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Punjab National Bank
Overweight
PNBK.BO, PNB IN
Asset quality disappoints but valuations reasonable;
maintain Overweight
• PNB reported net profit of Rs12B, up 6% y/y: Although headline
PAT was 10% higher than JPMe mainly due to higher non-interest
income, continued high slippages in 4Q11 were disappointing. Asset
quality trend is a concern, but valuations after the recent correction look
reasonable relative to high ROEs even factoring in high credit costs.
• Margin contraction in line with expectations: NII was 5% lower than
expected but, adjusting for the Rs1.0B IT refund in 3Q11, 20bp margin
contraction was in line with expectations. Although funding pressure
was evident from the increase in bulk deposits and market borrowing
and saving rate rises would add to the pressure on funding costs, PNB
has raised the PLR/base rate by 50bp, offsetting funding cost pressure.
• Slippages remain high: Asset quality trend remained weak, with gross
slippages at 2.2% in 4Q FY11 and Rs4.5B in slippages from the
restructured book. Also a Rs10B write-off led to a ~450bp fall in NPA
coverage. Recoveries have been improving but high slippages continue
to disappoint and remain a concern. We factor in higher credit costs at
~90bp in FY12.
• Opex/fee income a positive surprise: Employee expenses were 13%
lower than expected in spite of the second pension provisions for retired
employees. Overall the pension liability at Rs33.5B was marginally
lower than the Rs36B earlier guided. Non-interest income was higher
with strong core fee income growth (20% y/y) and higher recovery from
prudentially written off accounts.
• Maintain Overweight: We trim our earnings estimates by 1-3% for
FY12-13, factoring in marginally higher credit costs, and reduce our
Gordon growth based Mar-12 PT to Rs1300 (from Rs1350). Asset
quality remains a concern but we expect ROAs to remain high at 1.3-
1.35% in spite of higher credit costs. We thus believe current valuations
at 1.5x FY12E book are reasonable, although there could be near-term
weakness on the asset quality disappointment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank
Overweight
PNBK.BO, PNB IN
Asset quality disappoints but valuations reasonable;
maintain Overweight
• PNB reported net profit of Rs12B, up 6% y/y: Although headline
PAT was 10% higher than JPMe mainly due to higher non-interest
income, continued high slippages in 4Q11 were disappointing. Asset
quality trend is a concern, but valuations after the recent correction look
reasonable relative to high ROEs even factoring in high credit costs.
• Margin contraction in line with expectations: NII was 5% lower than
expected but, adjusting for the Rs1.0B IT refund in 3Q11, 20bp margin
contraction was in line with expectations. Although funding pressure
was evident from the increase in bulk deposits and market borrowing
and saving rate rises would add to the pressure on funding costs, PNB
has raised the PLR/base rate by 50bp, offsetting funding cost pressure.
• Slippages remain high: Asset quality trend remained weak, with gross
slippages at 2.2% in 4Q FY11 and Rs4.5B in slippages from the
restructured book. Also a Rs10B write-off led to a ~450bp fall in NPA
coverage. Recoveries have been improving but high slippages continue
to disappoint and remain a concern. We factor in higher credit costs at
~90bp in FY12.
• Opex/fee income a positive surprise: Employee expenses were 13%
lower than expected in spite of the second pension provisions for retired
employees. Overall the pension liability at Rs33.5B was marginally
lower than the Rs36B earlier guided. Non-interest income was higher
with strong core fee income growth (20% y/y) and higher recovery from
prudentially written off accounts.
• Maintain Overweight: We trim our earnings estimates by 1-3% for
FY12-13, factoring in marginally higher credit costs, and reduce our
Gordon growth based Mar-12 PT to Rs1300 (from Rs1350). Asset
quality remains a concern but we expect ROAs to remain high at 1.3-
1.35% in spite of higher credit costs. We thus believe current valuations
at 1.5x FY12E book are reasonable, although there could be near-term
weakness on the asset quality disappointment.
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