Action: Downgrade to Reduce and cut TP to INR680
We downgrade PNB to Reduce from our earlier Neutral rating and cut our
TP to INR680 as we believe loan delinquency will continue to increase for
PNB over the next few quarters. The high proportion of restructured loans
on which the delinquency ratio is currently running at 18% is an added
risk. We are factoring in loan delinquencies of INR98.3bn for FY13F,
compared with INR72.9bn earlier.
We expect a delinquency ratio of 3.99% for FY13F
We expect the asset quality pain to continue for PNB in the face of slowing
economic growth. The incremental delinquency ratio has increased from
1.81% in FY10 to 2.73% in FY12, and the annualized delinquency ratio
was 3.77% in 1QFY13. PNB has cumulatively restructured loans of
INR311bn and has an outstanding restructured loan book of INR255bn
(which is 8.7% of its loan book). The delinquency ratio from this
restructured book is currently trending at 18%. We are factoring in a
incremental delinquency of 3.99% for FY13F.
Catalysts: Continued slowdown in corporate capital spending and
increasing delinquency
Valuation: Our TP implies 0.8x FY13F ABV and 4.5x FY13E EPS.
PNB currently trades at 0.82x FY13F ABV of INR875, 2SD below its
historical mean of 1.3x one-year forward ABV. At our TP of INR680, PNB
trades at 0.8x FY13F ABV and 4.5x FY13F EPS for an FY13F ROA of
1.05% and ROE of 18.5%.
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