Punjab National Bank - 1QFY2014 Result Update - Motilal Oswal

PNB's 1QFY14 PAT grew 2% YoY to INR12.8b (15% above est.). NII was in line with estimate at INR39.1b, but led by better-than-expected fee income (2% YoY) and higher trading gains of INR2.8b (expected INR2b), PAT was above expectation.

- Slippages increased QoQ to INR36b (annualized slippage ratio of 4.9%) v/s INR29.6b in 4QFY13. The increase was led by the fall-out of a large account in gems and jewelry segment of INR16.6b, which became NPA during the quarter.

- Additions to standard restructured loans were INR27.7b (0.9% of loans), of which ~INR11b belonged to a power project (which under the new guideline would not have fallen into restructuring) and INR4b to another large account.

- Management continued to de-bulk and consolidate its balance sheet, resulting in moderate loan growth of 4% YoY. This also led to an improvement in balance sheet quality with (a) decline in bulk deposits to 8.8% v/s 22%+ in 1QFY13, (b) improving share of SA deposits at 31% (up 320bp YoY) and (c) NIM of 3.5%+.

- Despite the entire incremental funding from CASA and replacement of bulk with retail term deposits, overall NIMs was stable YoY due to higher slippages.

Valuation and view: We expect RoA to remain healthy at ~0.9% and RoE to be ~13/14%. Top management continuity till October 2014, improvement in liability profile and relatively better pension related assumption than peers, healthy RoA of ~0.9% are some of the comforting factors. Maintain Buy.

Source : Equity Bulls

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