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A big miss; broad trends unchanged. 3QFY15 was another disappointing quarter with fresh impairments of 8.6% as slippages remained high, primarily from restructured loans. Earnings grew 3% yoy but with ~95% contribution from treasury. NIM compression and slow growth are accentuating the problem as revenue growth was muted at 7% yoy. Improving macro could be the key driver for re-rating but the high levels of impairment ratio imply that PNB may not be an immediate beneficiary. Retain REDUCE (TP unchanged).
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Weak revenue growth and high provisions continue to impact earnings PNB reported another weak quarter with earnings growth of 3% yoy primarily supported by treasury income (95% of PAT). Revenues grew 7% yoy despite 38% yoy growth in non-interest income primarily because of a disappointing NII growth (flat yoy), as the bank is looking to shift the balance sheet towards low-risk loans. Cost-income ratio was higher at 50% primarily reflecting weak revenue growth. Impairment ratios were weak with slippages at 5.8% and fresh restructuring at 2.7% of loans. No despair on fresh impairment; near-term outlook to see these trends to continue Gross NPLs are at 6% while outstanding restructured loans are at 9.5% of loans, which is one of the highest in the industry. NPLs would have been higher had it not been for higher writeoffs this quarter, which has resulted in steel loan-loss provisions (2.1% of loans). Fresh slippages were high at 5.8% of loans primarily from cement, pharmaceuticals, iron and steel and textiles. 25% of the slippages for the quarter were from restructured loans. Restructured loans declined 70 bps qoq despite fresh restructuring being higher at 2.7% of loans primarily on account of slippages and upgrades post satisfactory performance. 35% of the exposure in iron and steel and textiles has now been classified as impaired loans for the bank. The management has indicated that while the scope for improvement is high, the near-term outlook still remains challenging as the improvement is yet to reflect in the real economy. Out cautious outlook stays. Yet to see firm improvements; maintain REDUCE We maintain our REDUCE rating on the bank with a TP of `180 (unchanged), incorporating our lower earnings forecast for FY2015-17E. While we still see the bank delivering 20% CAGR in earnings for FY2015-17E and RoEs in the range of 14-15%, we are not too comfortable to change our negative outlook on the bank. At the margin, while one could argue that the macro indicators are suggesting an improvement and PNB would be a direct beneficiary of the same, we are not too enthused to change our view as we are quite surprised at the persistent negative outcomes on impairment ratios. Loan-loss provisions at 1.8% suggest that the scope for surprise is high but we would wait for firm improvements given the frequent disappointments in the past.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
A big miss; broad trends unchanged. 3QFY15 was another disappointing quarter with fresh impairments of 8.6% as slippages remained high, primarily from restructured loans. Earnings grew 3% yoy but with ~95% contribution from treasury. NIM compression and slow growth are accentuating the problem as revenue growth was muted at 7% yoy. Improving macro could be the key driver for re-rating but the high levels of impairment ratio imply that PNB may not be an immediate beneficiary. Retain REDUCE (TP unchanged).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Weak revenue growth and high provisions continue to impact earnings PNB reported another weak quarter with earnings growth of 3% yoy primarily supported by treasury income (95% of PAT). Revenues grew 7% yoy despite 38% yoy growth in non-interest income primarily because of a disappointing NII growth (flat yoy), as the bank is looking to shift the balance sheet towards low-risk loans. Cost-income ratio was higher at 50% primarily reflecting weak revenue growth. Impairment ratios were weak with slippages at 5.8% and fresh restructuring at 2.7% of loans. No despair on fresh impairment; near-term outlook to see these trends to continue Gross NPLs are at 6% while outstanding restructured loans are at 9.5% of loans, which is one of the highest in the industry. NPLs would have been higher had it not been for higher writeoffs this quarter, which has resulted in steel loan-loss provisions (2.1% of loans). Fresh slippages were high at 5.8% of loans primarily from cement, pharmaceuticals, iron and steel and textiles. 25% of the slippages for the quarter were from restructured loans. Restructured loans declined 70 bps qoq despite fresh restructuring being higher at 2.7% of loans primarily on account of slippages and upgrades post satisfactory performance. 35% of the exposure in iron and steel and textiles has now been classified as impaired loans for the bank. The management has indicated that while the scope for improvement is high, the near-term outlook still remains challenging as the improvement is yet to reflect in the real economy. Out cautious outlook stays. Yet to see firm improvements; maintain REDUCE We maintain our REDUCE rating on the bank with a TP of `180 (unchanged), incorporating our lower earnings forecast for FY2015-17E. While we still see the bank delivering 20% CAGR in earnings for FY2015-17E and RoEs in the range of 14-15%, we are not too comfortable to change our negative outlook on the bank. At the margin, while one could argue that the macro indicators are suggesting an improvement and PNB would be a direct beneficiary of the same, we are not too enthused to change our view as we are quite surprised at the persistent negative outcomes on impairment ratios. Loan-loss provisions at 1.8% suggest that the scope for surprise is high but we would wait for firm improvements given the frequent disappointments in the past.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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