Punjab National Bank - Q4FY13 Result Update - Dolat Capital

Reductions in gross and net NPLs, with stable fresh NPL formations were the cornerstone of PNB's Q4FY13 results. Fresh NPL formations of Rs. 29.6bn was flat QoQ and was lower than what the street was expecting. While NPL upgrades declined QoQ, NPL recoveries showed an improvement. Overall, gross and net NPLs declined QoQ both on absolute and percentage basis. Coverage ratio also improved moderately from 56% in Q3 to 59%.

The bank restructured Rs. 64bn of loans during the quarter, while Rs. 64bn of loans were reduced from the restructured loans portfolio as per the RBI guidelines. Total restructured loans stood at Rs. 321bn forming 10.4% of the total loans book. The management does not see a major restructuring pipeline going forward.

Balance sheet growth slowed down with loan growth of 5% and deposit growth of 3%, in line with the management's strategy of de-risking the balance sheet. On average basis though, loan and deposit growth was better at 13% and 15% respectively.

NIM at 3.51% improved moderately QoQ, however the management has become more conservative in guiding for the next year. We believe that the bank should be able to maintain its NIM at current levels supported by stable CASA.

We believe that fresh NPL formations should now start trending downward over the next one year and NPL recoveries and upgrades should remain stable. Credit cost should also start trending downwards, supporting the net profit growth over the next two years. We find current valuation on 0.8x on our FY14 BVPS attractive and maintain our Buy rating on the stock with target price of Rs. 1021 (based on PBR of 1x on FY14 BVPS).

Source : Equity Bulls

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