Punjab National Bank - 4QFY2013 Result Update - Angel Broking

During 4QFY2013, PNB registered moderate operating performance (pre-provisioning profit de-grew by 2.9% yoy), which was on expected lines. However, on the asset quality front, the bank witnessed improvement, as its Gross NPA levels declined sequentially by 3.8%. The bank prudently increased its PCR (up by 286bp qoq) and hence provisioning expenses grew by 43.8% yoy and earnings declined by 20.6% yoy.

Business growth muted, NIMs largely stable sequentially: During 4QFY2013, the bank witnessed moderate growth in its business, with advances and deposits registering a growth of 5.1% and 3.2% yoy, respectively. CASA deposits grew by 14.3% yoy, much higher than the growth of 3.2% yoy registered in overall deposits. Reported CASA ratio for the bank improved by 466bp yoy to 40.9%. During the quarter, the bank shed around Rs. 10,150cr of differential rate deposits (including CDs), thereby leading to substantial reduction in share of differential rate deposits (including CDs) from 15.3% in 3QFY2013 to 12.5% in 4QFY2013. NIM remained largely stable sequentially at 3.5%. Non-interest income (excluding treasury) de-grew by 23.2% yoy, due to a poor performance on the fee income front. During the quarter, the bank reported improvement in asset quality, as slippages ratio for the year FY2013 moderated to 2.94%, as compared to annualized slippage ratio of 3.48% recorded for 9MFY2013. Also, recoveries/upgrades as a proportion to opening advances remained stable at 1.0% for FY2013 as compared to 1.0% for 9MFY2013. Consequently, on an absolute basis, gross and Net NPAs improved by 3.8% and 4.6%, sequentially, respectively. PCR for the bank improved by 280bp qoq to 58.8%. Additionally, the bank restructured advances worth ~Rs. 6,444cr during the quarter, thereby taking its outstanding restructured book, to Rs. 32,143cr (of which ~38%, come from power sector).

Outlook and valuation: The bank's valuations are currently at a low of 0.7x FY2015 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. The bank structurally has lower cost of deposits than peers and has cyclically already experienced relatively higher asset quality pain than peers. With asset quality improvements and consolidation of balance sheet, we expect prospects to improve for the bank. Even valuation-wise, the stock is trading below the lower end of its historical range. Hence, we recommend Buy with a target price of Rs. 945.

Source : Equity Bulls

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