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Punjab National Bank 3QFY2014 performance highlights and results update

February 6, 2014, Thursday, 06:10 GMT | 01:10 EST | 10:40 IST | 13:10 SGT
Contributed by Angel Broking

Punjab National Bank (PNB) reported stable asset quality numbers for the quarter, while operating performance was flat yoy, in line with our estimates. Sequentially lower slippages at Rs.1,505cr (almost half qoq) and higher provisioning (nearly double on a yoy basis) aided the bank to report sequentially flat Gross NPAs and 5.5% qoq decline in Net NPAs.
Business growth remains moderate; Asset quality stable qoq: Until 3QFY2014, the bank had adopted a balance sheet consolidation strategy for nearly a year, which was marked by subdued balance sheet growth. During 3QFY2014, business growth picked up slightly, as advances and deposits grew by 9.7% and 9.0% yoy, respectively. CASA deposits grew by 13.0% yoy and 2.9% qoq, much higher than the growth registered in overall deposits; the reported CASA ratio improved 196bp yoy to 40.4%. Reported NIM improved 10bp qoq to 3.6%, primarily aided by 16bp higher yield on advances. The non-interest income (excl. treasury) for the bank remained largely flat on a yoy basis. On the asset quality front, while sequentially lower slippages resulted in qoq flat Gross NPAs, higher provisioning expenses (nearly doubled on a yoy basis to Rs.1,590cr), aided a 258bp qoq improvement in PCR to 58.6% and 5.5% qoq decline in Net NPAs. Restructuring during the quarter came in lower qoq at Rs.2,150cr (a large part came from 2 chunky accounts) vs Rs.2,700cr in 2QFY2014. Bonds worth around Rs.2,000cr were issued by the SEBs under the FRP, which took the bank’s restructured book to Rs.31,200cr. As per the Management, the bank’s restructuring book even includes those accounts where the package is yet to be approved and implemented (normally most banks include them in restructuring book once the package is approved and implemented). Going forward, the Management expects no major advances to be in the restructuring pipeline.
Outlook and valuation: PNB has witnessed severe asset quality pain over the last several quarters. The bank’s Management (which has historically been reasonably cautious on its asset quality), now believes that the worst is over in terms of asset quality and expects stable to improving asset quality here on. However, we remain watchful on incremental asset quality pressures for the bank in the near term, as negative surprises on the asset quality still cannot be entirely ruled out. At CMP, the stock trades at a valuation at 0.5x FY2015E ABV. With increasing expectations of reversal in interest rate cycle in early part of next fiscal, from a medium term perspective, we recommend investors with a higher risk appetite to Buy the stock, with a target price of Rs.657.