Punjab National Bank - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, PNB registered a moderate 12.7% yoy growth in net profit, despite healthy growth of 18.6% yoy on the net interest income front, mainly on the back of increased NPA provisioning, considering the continued pressures on the asset quality being faced by the bank.

NIMs decline sequentially, slippages remain at elevated levels: For 1QFY2013, the bank's business grew at healthy pace, with advances and deposits registering a growth of 21.2% and 18.9% yoy, respectively. Growth in advances was primarily on the back of increased lending to the agri and services sector. Overall CASA deposits growth remained much lower at 9.8% yoy (savings deposits grew by 13.2% yoy, while current deposits declined by 2.5% yoy), compared to growth of 18.8% registered in overall deposits. Consequently, reported CASA ratio declined to 35.6%. Owing to bank's conscious efforts to reduce short terms loans, the yields on advances improved by 12bp sequentially, which coupled with 28bp qoq improvement in yields on investment (on MTM gains on fixed asset portfolio) aided the 10bp improvement in reported NIMs to 3.6%. Non-interest income (excluding treasury) grew by 13.3% yoy, aided by higher forex and CEB income. On the asset quality front, the gross and net NPA ratios increased on a sequential basis, by 41 and 16bp, respectively. Annualized slippage ratio remained at elevated level of 3.8%. Recoveries and upgrades were significantly higher at Rs.1,466cr during the quarter, compared to average of ~Rs.480cr since 1QFY2011. Going ahead, though the management expects elevated levels of slippages to continue in-line with slowing economy, but they also anticipate recoveries and upgradation to remain robust at atleast ~Rs.1,000cr per quarter. The bank restructured ~Rs.1,239cr during the quarter, thereby taking its outstanding restructured book to Rs.25,519cr, which is stated borrower-wise.

Outlook and valuation: The bank's valuations are currently at low 0.8x FY2014 ABV compared to its eight year range of 1.0-1.6x and median of 1.4x, due to the asset quality concerns facing the sector. Taking into account the bank's structurally lower cost of deposits than peers and valuations even below the lower end of its historical trading range, we currently have a positive stance on the bank. Hence, we recommend a Buy with a target price of Rs.1,000.

Source : Equity Bulls

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