PNB - Q4FY13 results: Asset quality show some stability - Kotak

Core earnings (NII at 14.2% YoY) came largely in-line with our expectation while PAT growth was impacted by higher provisions. Liability franchise continued to improve - CASA share by 230bps QoQ with the shedding-off bulk deposits while loan growth was moderate as a part of conscious strategy to consolidate its balance sheet.

Although reported NPA numbers improved QoQ, it is disguising the persisting asset quality risk for the bank. Gross slippage remained high (4% on annualized basis), while addition to restructured portfolio zoomed to Rs.64.4 bn (8.8% on annualized basis) as against the run-rate of Rs.25.7 bn seen during previous three quarters. Addition to restructured portfolio came at ~12.8% (annualized no) during Q4FY13, higher by any standard.

We expect its return ratios to remain lower in near term - RoE/RoA are likely to come at ~16%/1.0% during FY14E as compared to ~24%/1.4%, seen during FY09-11. Hence, we retain REDUCE rating on the stock with unchanged TP of Rs.820 based on P/ABV of 1.0x its FY14E adjusted book value.

Source : Equity Bulls

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