Punjab National Bank - Biggest Beneficiary of Likely Economic Turnaround; Reiterate "BUY" - Karvy

Lower Credit Growth Indicates Cautious Approach: Punjab National Bank (PNB) has slowed down its credit growth to 6% as against over 20% CAGR in last 8 years and such meager credit growth indicates Management's commitment towards asset quality restoration and not fancy race for growth.

Deterioration in Asset Quality Drags Valuation: PNB is trading at discount to BoB & SBI mainly on account of higher slippages and restructuring. In earlier interest rate cycle, the Bank mostly traded at premium to its PSU peers on account of its better NIMs & ROE profile.

Credit Cost to Ease: On account of deterioration in its asset book, PNB's credit cost has taken a huge hit over past 2 years. Despite situation worsening, the Bank has been able to maintain its provision coverage at ~55% for last 5 quarters. With expected improvement in economy and recovery cycle along with interest rate cuts, the Bank will be the biggest beneficiary, going forward.

Best-in-Class NIMs: Despite higher slippages and credit cost during the year, the Bank managed to make average RoA of >0.9% for last 4 quarters, on account of high margin profile. Even after the slide, the Bank makes NIMs of >3.5%, backed by healthy CASA, as it operates in cash-rich northern belt.

Outlook & Valuation

We reiterate our "BUY" recommendation on PNB with unrevised target price of Rs. 730 per share valuing it at 0.8x P/ABV FY15E.

Source : Equity Bulls

Keywords