Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank (PNB)
Banks/Financial Institutions
Large restructuring dampens strong performance. PNB reported strong earnings
largely driven by NIM expansion and stable NPLs. Slippages were low (1.6% levels) as
PNB completed the last leg of migration exercise. The optically strong financial
performance was however underpinned by large restructuring in select accounts,
thereby indicating weakness in underlying business. We revise earnings downwards,
reduce TP to `1,350 (from `1,500 earlier); retain BUY.
Large restructuring takes the sheen off the results; maintain BUY
Large restructuring offset the positives emerging from this quarter’s earnings. The quarter saw (1)
NIMs expand 11 bps qoq, (2) gross NPLs increase only by 5% qoq (slippages at 1.6% levels)
despite NPLs fully reported without any manual intervention, (3) excess earnings were used to
improve provision coverage of 200 bps, and (4) additional provisions for investment depreciation
as current yields are higher than that of 2QFY11. Earnings growth, despite all these provisions,
was impressive at 12% yoy. However, large restructuring—1.6% of loans, primarily from power
(SEB exposure), drilling and metals—overshadowed the strong earnings performance.
We continue to like the bank as valuations remain attractive at 1.3X book and 6X FY2012E EPS.
We expect the bank to deliver 14% earnings CAGR between FY2011 and FY2013E and deliver
RoEs in the range of 20% levels. We revise earnings downwards by about 10% for FY2013E and
FY2014E to factor lower loan and fee income growth while building in higher loan-loss provisions.
Restructuring results in sharp rise (30% qoq) in restructured loans
PNB reported 30% increase (`41 bn) in restructured loans, taking the total restructured loans to
6% of advances. Restructuring in the current quarter was a huge exercise primarily pertaining to
two sectors: power (`21 bn) and drilling (`6.4 bn). Nearly 80% of the loans restructured in power
pertain to a single state electricity board. We note that this is the first SEB loan which has been
restructured though PNB has not reported any NPV hit in the current restructuring. The current
restructuring has opened the window for SEB restructuring given their cash constraints; this has
been further aggravated with new disbursements coming under RBI’s scrutiny.
NPLs move smoothly to the new platform; slippages at 1.6% while coverage improves 170 bps
Asset quality trends were impressive and the bank completed the final leg of migration under the
stringent reporting platform with very low slippages. Slippages were at `9.9 bn (1.6% annualized)
while recoveries and upgradations were higher, thereby driving marginal increase in gross NPLs
qoq—gross NPLs increased by 5% qoq to `52 bn (2.1% of loans). Net NPLs were stable qoq at
`20.9 bn (0.8% of loans). Provision coverage improved to 76% from 74% qoq. PNB proposes to
maintain NPLs at about 2%.
Loan re-pricing drives improvement in margins
PNB reported NIMs at 3.95%—11 bps improvement qoq and better than our expectations
led by healthy re-pricing of loans. The bank remains very focused on margins and has been
proactive in raising lending rates. Yield on advances improved by 54 bps qoq while cost of
deposits increased by 24 bps qoq. Yield on investments improved by 13 bps qoq. We remain
conservative and build NIMs to decline by 30 bps by FY2014E.
Loan growth slows down to industry average; CASA ratio at 37%
PNB’s loan book traction is gradually slowing down and is currently at 19% yoy (3% YTD)—
loans were `2.49 tn as of September 2011. Growth has been diversified with the SME
segment witnessing 18% growth yoy, large industries 25% yoy and retail 20% yoy. We are
factoring growth to moderate further to about 17% CAGR for FY2011-13E.
Deposits grew by 25% yoy to `3.4 tn. However, CASA deposits growth was slower at 11%
yoy, resulting in overall CASA ratio to decline to 37% (down from 39% in March 2011 and
from 41% yoy). The bank continues to remain opportunistic in its lending strategy,
preferring to borrow wholesale, if underlying spreads are attractive. Wholesale deposits
constitute 24% of overall deposits as of June 2011.
Other key operational highlights for the quarter
Cost-income ratio was at 42% for the quarter as the bank has made higher provisions for
retirement benefits during the quarter.
Non-interest income grew by 24% yoy to `8.9 bn driven by strong exchange (329% yoy)
and treasury income). Core fee income growth was flat yoy, pulling our estimates
downwards for FY2012-14E. Treasury income (including MF income) tripled to `1.1 bn.
Investment depreciation was at `1.6 bn which includes additional provision of `1.0 bn to
factor the rise in investment yields post September 2011.
Capital adequacy ratio stands comfortable with tier-1 ratio at 8.4% and we see limited
risk on near-term balance sheet growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Punjab National Bank (PNB)
Banks/Financial Institutions
Large restructuring dampens strong performance. PNB reported strong earnings
largely driven by NIM expansion and stable NPLs. Slippages were low (1.6% levels) as
PNB completed the last leg of migration exercise. The optically strong financial
performance was however underpinned by large restructuring in select accounts,
thereby indicating weakness in underlying business. We revise earnings downwards,
reduce TP to `1,350 (from `1,500 earlier); retain BUY.
Large restructuring takes the sheen off the results; maintain BUY
Large restructuring offset the positives emerging from this quarter’s earnings. The quarter saw (1)
NIMs expand 11 bps qoq, (2) gross NPLs increase only by 5% qoq (slippages at 1.6% levels)
despite NPLs fully reported without any manual intervention, (3) excess earnings were used to
improve provision coverage of 200 bps, and (4) additional provisions for investment depreciation
as current yields are higher than that of 2QFY11. Earnings growth, despite all these provisions,
was impressive at 12% yoy. However, large restructuring—1.6% of loans, primarily from power
(SEB exposure), drilling and metals—overshadowed the strong earnings performance.
We continue to like the bank as valuations remain attractive at 1.3X book and 6X FY2012E EPS.
We expect the bank to deliver 14% earnings CAGR between FY2011 and FY2013E and deliver
RoEs in the range of 20% levels. We revise earnings downwards by about 10% for FY2013E and
FY2014E to factor lower loan and fee income growth while building in higher loan-loss provisions.
Restructuring results in sharp rise (30% qoq) in restructured loans
PNB reported 30% increase (`41 bn) in restructured loans, taking the total restructured loans to
6% of advances. Restructuring in the current quarter was a huge exercise primarily pertaining to
two sectors: power (`21 bn) and drilling (`6.4 bn). Nearly 80% of the loans restructured in power
pertain to a single state electricity board. We note that this is the first SEB loan which has been
restructured though PNB has not reported any NPV hit in the current restructuring. The current
restructuring has opened the window for SEB restructuring given their cash constraints; this has
been further aggravated with new disbursements coming under RBI’s scrutiny.
NPLs move smoothly to the new platform; slippages at 1.6% while coverage improves 170 bps
Asset quality trends were impressive and the bank completed the final leg of migration under the
stringent reporting platform with very low slippages. Slippages were at `9.9 bn (1.6% annualized)
while recoveries and upgradations were higher, thereby driving marginal increase in gross NPLs
qoq—gross NPLs increased by 5% qoq to `52 bn (2.1% of loans). Net NPLs were stable qoq at
`20.9 bn (0.8% of loans). Provision coverage improved to 76% from 74% qoq. PNB proposes to
maintain NPLs at about 2%.
Loan re-pricing drives improvement in margins
PNB reported NIMs at 3.95%—11 bps improvement qoq and better than our expectations
led by healthy re-pricing of loans. The bank remains very focused on margins and has been
proactive in raising lending rates. Yield on advances improved by 54 bps qoq while cost of
deposits increased by 24 bps qoq. Yield on investments improved by 13 bps qoq. We remain
conservative and build NIMs to decline by 30 bps by FY2014E.
Loan growth slows down to industry average; CASA ratio at 37%
PNB’s loan book traction is gradually slowing down and is currently at 19% yoy (3% YTD)—
loans were `2.49 tn as of September 2011. Growth has been diversified with the SME
segment witnessing 18% growth yoy, large industries 25% yoy and retail 20% yoy. We are
factoring growth to moderate further to about 17% CAGR for FY2011-13E.
Deposits grew by 25% yoy to `3.4 tn. However, CASA deposits growth was slower at 11%
yoy, resulting in overall CASA ratio to decline to 37% (down from 39% in March 2011 and
from 41% yoy). The bank continues to remain opportunistic in its lending strategy,
preferring to borrow wholesale, if underlying spreads are attractive. Wholesale deposits
constitute 24% of overall deposits as of June 2011.
Other key operational highlights for the quarter
Cost-income ratio was at 42% for the quarter as the bank has made higher provisions for
retirement benefits during the quarter.
Non-interest income grew by 24% yoy to `8.9 bn driven by strong exchange (329% yoy)
and treasury income). Core fee income growth was flat yoy, pulling our estimates
downwards for FY2012-14E. Treasury income (including MF income) tripled to `1.1 bn.
Investment depreciation was at `1.6 bn which includes additional provision of `1.0 bn to
factor the rise in investment yields post September 2011.
Capital adequacy ratio stands comfortable with tier-1 ratio at 8.4% and we see limited
risk on near-term balance sheet growth.
No comments:
Post a Comment