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EARNINGS REVIEW
Punjab National Bank (PNBK.BO)
Buy Equity Research
In line with expectations on core profits on higher fee/FX income
Good performance on core in a difficult environment
PNB reported 1QFY12 PAT of Rs11.1bn (up 3% yoy), in line with BB
consensus and 8% below Gse, but PBT less treasury and provisions (core
profits) came in line with Gse, growing 18% yoy. Key takeaways: (1) NII
was Rs31.2bn (+19% yoy) as credit grew 23% yoy and NIM declined
marginally by 7bps qoq to 3.84%. The NIM decline was limited vs. other
PSU banks as CASA decline of 110bp qoq to 37.4% was largely offset by
better repricing on the asset side. However, we estimate a 30bp decline in
margins in FY12E vs. FY11; (2) Non-interest income was 20% above GSe,
driven by strong fee income development (+21% yoy) and FX income that
grew 38% yoy, which more than offset the net treasury loss of Rs860mn;
(3) Opex came in 10% ahead of Gse as PNB booked Rs3bn for pension and
gratuity (at faster run-rate to factor in likely higher wage hikes in the
future) in addition to the Rs1.66bn being booked for past liabilities; (4)
Loan loss provisions (1.2% of loans) came in 15% higher than Gse as NPLs
remain a concern. Gross NPLs rose 12% qoq to Rs48.9bn (at 2% of
advances) as slippage was 2.37% (4Q11: 2.65%); net NPLs, however, grew
slower at 3% qoq to Rs20.9bn (0.9%) as PCR improved to 74.3% (+100bps
qoq). The bank has still to move loans below Rs1 mn to system-based NPL
recognition and slippages may therefore remain high in 2QFY12.
Retain Buy despite NPL issues, remains a preferred pick in PSUs
We fine-tune our FY12E-FY14E EPS estimates by -3.2% to 5.7% to reflect
lower NII in FY12E-FY13E and higher fee income in FY14E, but retain our 12-
m CAMELOT-based target price of Rs1,410. While the environment remains
challenging, we maintain our Buy on PNB given strong core earnings
growth, high RoA of about 1.2%, and RoE of over 21% for FY12E-FY13E. Key
risks are higher slippage and higher growth leading to margin dilution
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Punjab National Bank (PNBK.BO)
Buy Equity Research
In line with expectations on core profits on higher fee/FX income
Good performance on core in a difficult environment
PNB reported 1QFY12 PAT of Rs11.1bn (up 3% yoy), in line with BB
consensus and 8% below Gse, but PBT less treasury and provisions (core
profits) came in line with Gse, growing 18% yoy. Key takeaways: (1) NII
was Rs31.2bn (+19% yoy) as credit grew 23% yoy and NIM declined
marginally by 7bps qoq to 3.84%. The NIM decline was limited vs. other
PSU banks as CASA decline of 110bp qoq to 37.4% was largely offset by
better repricing on the asset side. However, we estimate a 30bp decline in
margins in FY12E vs. FY11; (2) Non-interest income was 20% above GSe,
driven by strong fee income development (+21% yoy) and FX income that
grew 38% yoy, which more than offset the net treasury loss of Rs860mn;
(3) Opex came in 10% ahead of Gse as PNB booked Rs3bn for pension and
gratuity (at faster run-rate to factor in likely higher wage hikes in the
future) in addition to the Rs1.66bn being booked for past liabilities; (4)
Loan loss provisions (1.2% of loans) came in 15% higher than Gse as NPLs
remain a concern. Gross NPLs rose 12% qoq to Rs48.9bn (at 2% of
advances) as slippage was 2.37% (4Q11: 2.65%); net NPLs, however, grew
slower at 3% qoq to Rs20.9bn (0.9%) as PCR improved to 74.3% (+100bps
qoq). The bank has still to move loans below Rs1 mn to system-based NPL
recognition and slippages may therefore remain high in 2QFY12.
Retain Buy despite NPL issues, remains a preferred pick in PSUs
We fine-tune our FY12E-FY14E EPS estimates by -3.2% to 5.7% to reflect
lower NII in FY12E-FY13E and higher fee income in FY14E, but retain our 12-
m CAMELOT-based target price of Rs1,410. While the environment remains
challenging, we maintain our Buy on PNB given strong core earnings
growth, high RoA of about 1.2%, and RoE of over 21% for FY12E-FY13E. Key
risks are higher slippage and higher growth leading to margin dilution
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