Recommendations » India

PNB 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, PNB registered a moderate set of results with net profit growing by 5.5% yoy to Rs.1,150cr, which was below our estimates on account of higher provisioning expenses than estimated by us. We recommend an Accumulate rating on the stock.

Chunky slippages and restructuring lead to deterioration in asset quality: The bank’s business growth momentum picked up during 3QFY2012. Advances for the bank increased by 5.5% qoq (18.7% yoy). On a yoy basis, advances growth was driven by loans to MSME’s and retail which grew by 18.5% and 19.7%, respectively. Deposits growth on a qoq basis stood at 4.3% qoq (up 23.4% yoy), however CASA deposits growth was muted at 1.6% qoq (up 11.7% yoy). Saving account deposit growth was slightly better at 2.2% qoq (up 14.3% yoy).  Consequently, reported CASA ratio declined by 90bp qoq and 350bp yoy to 36.2%. The banks reported NIMs slipped by 7bp to 3.9% during 3QFY2012 on back of 22bp qoq rise in the cost of deposits to 6.7%. The yield on advances was nearly flat sequentially at 12.0%. Fee income picked up sequentially, driven by higher forex income (up 15.8% qoq) and recoveries (up 35.3% qoq). On the asset-quality front, the bank surprised negatively with slippages rate jumping to 2.8% (1.6% in 2QFY2012). However, the management attributed this sharp jump in slippages to primarily an aviation account which slipped during the quarter. Consequently, the NPA levels rose sharply qoq with gross NPAs rising by 25.1% qoq and net NPA rising by 38.9% qoq. The bank restructured Rs.1,989cr worth of accounts during 3QFY2012, of which Rs.978cr was to a telecom account. The bank also took a hit of Rs.150cr for NPV loss on this telecom account during the quarter. The total outstanding restructured book as of 3QFY2012 stands at Rs.16,687cr.

Outlook and valuation: The bank’s valuations are currently at low 1.1x FY2013 ABV compared to its five year range of 1.1–1.6x and median of 1.4x, due to the asset quality concerns facing the sector. Taking into account the bank’s relatively lower cost of deposits than peers and valuations at the lower end of its historical trading range, we currently have a positive stance on the bank. Hence, we recommend an Accumulate on the stock with a target price of Rs.1,036.