Punjab National Bank 1Q12: A decent quarter :: Macquarie Research,

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Punjab National Bank
1Q12: A decent quarter
Event
 1Q12 - Decent set of nos: PNB reported a 3% YoY increase in net profits to
Rs11bn, in line with our estimates. What was encouraging in the result was
the positive surprise on margins and improvement in slippages. Maintain
Outperform with TP of Rs1300.
Impact
 Cushion of high margins – the biggest positive: In an environment where
there are continued pressures on asset quality, a high margin structure is very
essential to maintain profitability, and PNB has done a commendable job in
arresting the QoQ margin decline to 7bps. NIMs in 1Q12 were at 3.84% and
the management has consistently delivered NIMs well above their guidance of
3.5% for several quarters now. The QoQ decline was much lower than the
30bps QoQ decline which most of its peers have reported.
 Asset quality – slippages reduce a bit: PNB’s slippages this quarter were at
1.94%, roughly 30bps lower than 4Q. Though slippages are still high, we are
encouraged by the fact that the trend is different in PNB compared to most
other PSUs, which have reported a sharp sequential increase. Even the
assets restructured and slippages from restructured assets during the quarter
were lower sequentially. However, overall provisions were still high on a QoQ
basis, due to higher regulatory provisions due to IRAC norms and standard
asset provisioning on restructured assets and higher investment depreciation
provisions. Going forward, we expect the provisioning requirements to reduce.
 Decline in CASA and recourse to bulk funding worries us: PNB’s CASA
has been consistently coming down as the bank has been taking recourse to
bulk funding. CASA has further declined 100bps QoQ to 38% and the share of
bulk deposits/funding has gone up by 500bps YoY and 200bps QoQ to 24%.
 Key takeaways from the analyst conference call: 1) All accounts above
Rs1mn have been classified using system-based NPL recognition and they
will classify the remaining accounts by Sep-2011. 2) Exposure to beleaguered
airline Air India (unlisted) is Rs27.1bn (1% of loan book) 3) Current year
normal retirement benefit provision done this quarter was Rs2.64bn, which
may continue every quarter and consequently opex may remain high.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs1,300.00 based on a Gordon Growth Model
methodology.
 Catalyst: Higher levels of NIMs and stable return ratios
Action and recommendation
 Maintain Outperform, one of our favourites amongst PSU banks: The
ability of PNB to maintain its margins consistently at high levels gives us the
confidence that its stellar return ratios are here to stay.