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PNB 3QFY2013 performance highlights and results update

Contributed by Angel Broking

During 3QFY2013, PNB registered a better-than-expected performance on the asset quality front, as higher recoveries/upgrades compensated for elevated slippages. On the operating front, the pre-provisioning profits remained almost flat on a yoy basis (due to cautious advance growth and interest reversal on slippages). Aided by 15.3% yoy decline in the provisioning expense (on lower investment-related provisioning), the bank posted an earnings growth of 13.5%.

Business growth moderates; NIM largely stable sequentially: During 3QFY2013, the bank’s advances grew at a moderate pace of 13.2% yoy, aided by healthy traction in services, retail and SME lending. Growth in CASA deposits came in at 13.1% yoy, much higher than 8.2% yoy growth in overall deposits. Reported CASA ratio improved by 144bp sequentially to 38.4%. During the quarter, the bank shed around Rs.24,000cr of differential rate deposits (including CDs), thereby leading to substantial reduction in share of differential rate deposits (including CDs) from 20.8% in 2QFY2013 to 15.3%. NIM remained largely stable sequentially at 3.5%. Despite higher recoveries, non-interest income (excl. treasury) de-grew by 1.4% yoy, due to flat performance on the fee income front. The bank reported better-thanexpected asset quality performance, largely on back of strong performance on the recoveries/upgrades front, even as slippages remained elevated. Recoveries and upgrades during the quarter came in at Rs.2,955cr, much higher than Rs.2,564cr in entire 1HFY2013. During the quarter, the annualized slippage ratio for the bank, though came off from the high of 7.1% registered in 2QFY2013, still remained elevated at 4.0%. On an absolute basis, while gross NPAs remained flat sequentially, net NPA levels came off by 3.8% sequentially. Going ahead, the Management expects slippages to continue in-line with the slowing economy. Additionally, the bank restructured advances worth ~Rs.3,700cr during the quarter, (including advance to Suzlon), thereby taking its outstanding restructured book, to Rs.30,329cr. The PCR for the bank improved by 166bp qoq to 56%.

Outlook and valuation: The bank’s valuations are currently at a low of 0.9x FY2014 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. Valuation-wise, the stock is trading below the lower end of its historical range. Hence, we recommend Buy with a target price of Rs.1,053.