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Punjab National Bank 4QFY2014 performance highlights and results update

May 21, 2014, Wednesday, 06:22 GMT | 01:22 EST | 10:52 IST | 13:22 SGT
Contributed by Angel Broking

Punjab National Bank (PNB) reported significant pressure on the asset quality front during 4QFY2014, while the operating performance was below our expectations. The key highlights of results are 1) Sequentially surge in slippages at Rs.4,452cr (vs Rs.1,505cr in 3QFY2014) and higher restructuring at Rs.3,200cr (vs Rs.2,150cr in 3QFY2014) 2) Moderate NII growth at 6.0% on account of interest reversals of Rs.210cr 3) Decrease in NIM by 37bp qoq to 3.2%.

NIM declines; Asset quality witnesses severe pressure qoq: The bank had adopted a balance sheet consolidation strategy for nearly a year till 3QFY2014, which was marked by subdued balance sheet growth. During 4QFY2014, business growth picked up slightly, as advances and deposits grew by 13.1% and 15.3% yoy, respectively. CASA deposits grew by 12.7% yoy and 7.4% qoq. The reported CASA ratio improved 44bp yoy to 41.3%. The reported NIM for the bank decreased 37bp qoq to 3.2% on back of lower yields on advances by 66bp qoq to 9.9%. The non-interest income (excl. treasury) grew strong yoy on back of robust performance on recoveries and healthy performance on CEB front. During 4QFY2014, slippages more than doubled on a qoq basis to Rs.4,452cr (slippage rate of 5.4% as against 1.9% in 3QFY2014 and 1.3% for 4QFY2013). Sequentially higher slippages but higher recoveries and upgrades restricted absolute Gross NPA increase by 13.8% qoq. The provisioning expenses for the bank increased by 44.7% yoy to Rs.2,139cr, leading to a 52bp qoq improvement in PCR to 59.1% and 9.2% qoq increase in Net NPAs. Overall, the Gross NPA ratio increased by 29bp qoq while the Net NPA ratio increased by 5bp qoq to 5.3% and 2.9% respectively. Restructuring during the quarter came in higher qoq at ~Rs.3,200cr (~Rs.2,200cr from CDR and Rs.983cr from non-CDR) vs Rs.2,150cr in 3QFY2014. The bank’s restructuring pipeline now stands at Rs.1,200cr.

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), expects stable to improving asset quality hereon. At CMP, the stock trades at a relatively cheap valuation of 0.9x FY2016E ABV compared to its peers. We recommend Accumulate rating on the stock.

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