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Punjab National Bank
1Q: Best in class earnings
quality; Reiterate Buy
„1Q: Earnings 4% below, but quality of earnings much better
PNB reported earnings of Rs11.1bn (4% below), up ~4% yoy due to higher
provisions, partly due to regulatory requirements. But PNB’s quality of earnings
was much better including margins and asset quality. Earnings driven by better
than est. topline (3% higher) and fees. Topline was driven by +23% yoy loan
growth and margins mostly stable yoy and qoq at 3.8%. Fee income growth too
strong at +25% yoy. CASA down qoq by ~100bps and ~350bps yoy to ~38%.
Asset quality trend better than most peers (govt. banks)
PNB reported slippages of Rs11.8bn (in-line; Rs12.5bn in 4Q). Moreover, 1Q saw
no write-off’s vs. aggressive write-off’s (Rs10bn) in 4Q. Furthermore, amongst all
peer govt. banks, PNB has shown a much better trend in net NPL accretion over
the last 3 quarters. Headline gross NPLs are up 12% (at 2.0%) and net up 3% (at
0.9%), with provision cover at +74%. While we still est. slippages at ~Rs48bn for
FY12 (vs. Rs43bn in FY11), asset quality to remain manageable, with net NPLs
forecast to remain at <1.0% and provision cover at +73-75% through FY13.
Risk-return attractive; Buy for +27% upside potential
We have cut our earnings estimate by +4/8% for FY12/13 factoring in margin
pressure for FY12 and loan growth cut for FY13. But we still estimate PNB’s
earnings growth to sustain at ~25% through FY12/13. In our view, risk-return
remains very attractive, with PNB trading at 1.6x FY12 book (1.3x FY13 book), with
RoEs of +23-24% (RoAs at 1.4% in FY13). While for most govt. banks we have cut
PO on earnings cut and macro headwinds, for PNB, we assign a +5-10% discount
(FY13 book) Gordon multiples owing to superior quality of earnings and return
ratios. Hence, maintain PO; Reiterate Buy; Preferred large-cap pick in govt. space.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank
1Q: Best in class earnings
quality; Reiterate Buy
„1Q: Earnings 4% below, but quality of earnings much better
PNB reported earnings of Rs11.1bn (4% below), up ~4% yoy due to higher
provisions, partly due to regulatory requirements. But PNB’s quality of earnings
was much better including margins and asset quality. Earnings driven by better
than est. topline (3% higher) and fees. Topline was driven by +23% yoy loan
growth and margins mostly stable yoy and qoq at 3.8%. Fee income growth too
strong at +25% yoy. CASA down qoq by ~100bps and ~350bps yoy to ~38%.
Asset quality trend better than most peers (govt. banks)
PNB reported slippages of Rs11.8bn (in-line; Rs12.5bn in 4Q). Moreover, 1Q saw
no write-off’s vs. aggressive write-off’s (Rs10bn) in 4Q. Furthermore, amongst all
peer govt. banks, PNB has shown a much better trend in net NPL accretion over
the last 3 quarters. Headline gross NPLs are up 12% (at 2.0%) and net up 3% (at
0.9%), with provision cover at +74%. While we still est. slippages at ~Rs48bn for
FY12 (vs. Rs43bn in FY11), asset quality to remain manageable, with net NPLs
forecast to remain at <1.0% and provision cover at +73-75% through FY13.
Risk-return attractive; Buy for +27% upside potential
We have cut our earnings estimate by +4/8% for FY12/13 factoring in margin
pressure for FY12 and loan growth cut for FY13. But we still estimate PNB’s
earnings growth to sustain at ~25% through FY12/13. In our view, risk-return
remains very attractive, with PNB trading at 1.6x FY12 book (1.3x FY13 book), with
RoEs of +23-24% (RoAs at 1.4% in FY13). While for most govt. banks we have cut
PO on earnings cut and macro headwinds, for PNB, we assign a +5-10% discount
(FY13 book) Gordon multiples owing to superior quality of earnings and return
ratios. Hence, maintain PO; Reiterate Buy; Preferred large-cap pick in govt. space.
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