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Punjab National Bank 1QFY2015 performance highlights and results update

August 6, 2014, Wednesday, 10:20 GMT | 05:20 EST | 14:50 IST | 17:20 SGT
Contributed by Angel Broking


Punjab National Bank (PNB) reported a mixed set of numbers for 1QFY2015 with the profit growing by 10.2% yoy; however asset quality issues persist. The key highlights of the results are 1) Advances grew at a moderate pace of 13.9% yoy leading to a 12.1% yoy growth in NII 2) Slippages were lower at Rs.2,958cr as compared to Rs.4,452cr in the sequential previous quarter 3) The Gross NPA ratio and Net NPA ratio increased by 23bp and 17bp sequentially to 5.5% and 3% respectively 4) NIM increased by 22bp qoq to 3.4% as yield on advances improved by 34bp sequentially to 10.3%.

NIM declines; Asset quality continues to witness pressure: The bank had adopted a balance sheet consolidation strategy for nearly two and a half years, which according to the Management has now come to an end. During 1QFY2015, business growth picked up slightly, as advances and deposits grew by 13.9% and 12.1%, respectively. CASA deposits increased by 9.1% yoy, with the CASA ratio improving to 39.9% for the quarter. The reported NIM for the bank increased by 22bp qoq to 3.4% on back of higher yields on advances by 34bp qoq to 10.3%. The non-interest income (excl. treasury) grew by 2.3% yoy, mainly on account of a 10.4% yoy increase in the CEB income. Provisions fell by 13% yoy, as increase in NPA provisions (98% yoy growth) was offset by write back in the investment book. During 1QFY2015, slippages fell from Rs.4,452cr in the sequential previous quarter to Rs.2,958cr with slippage ratio at 3.4% as compared to 5.1% in the sequential previous quarter. However, slippages still remains on the higher side. One large account of Rs.430cr and seven accounts of more than Rs.100cr have slipped into NPA, during the quarter. Overall the Gross NPA ratio for 1QFY2015 increased by 23bp qoq to 5.5%, while the Net NPA ratio increased by 17bp to 3%. The bank has made provision of Rs.50cr on adhoc basis as it could not get data on unhedged exposure from its customers. Restructuring during the quarter came in lower qoq at Rs.1,452cr due to higher slippages in the restructured book.

Outlook and valuation: Though slippages were lower in the quarter, we expect asset quality woes to continue in future as some restructured accounts may slip into NPA going forward due to the large restructuring book. The Management indicated that the consolidation phase is over and expects the loan book to grow at a faster pace (15-16%) in the current fiscal with improvement in the corporate sector. At CMP, the stock trades at a relatively cheaper valuation of 0.9x FY2016E ABV. We recommend a Buy rating on the stock.