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Punjab National Bank Research Report - 12th Feb 2016

Banking | Published on Feb 12th 2016

IT

Punjab National Bank (PNB) has come out with a disappointing set of numbers for 3QFY2016. Although we had expected the results to be unimpressive, but the quantum of rise in the Gross NPAs has surprised us. The bank reported a PAT of only Rs. 51cr for the quarter despite a tax write back of Rs. 908cr. Loan growth remained subdued; NIM under pressure: For the quarter, advances growth at 8.4% yoy remained subdued, while deposit growth was decent at 13.3% yoy. CASA deposits grew by 14.3% yoy with Current deposits growing by 22.9% yoy and Savings deposits growing by 12.5% yoy. The CASA ratio stood at 40.4%. The NIM for the quarter declined by 22bp qoq to 2.75% due to lower yield on advances, which is largely due to base rate cuts. Provisions doubled to Rs. 3,775cr compared to Rs. 1,882cr in the sequential previous quarter, resulting in a loss at the PBT level to the tune of Rs. 857cr. The bank got a tax write back of Rs. 908cr; as a result the bank generated a PAT of Rs. 51cr for the quarter. Sharp deterioration in asset quality: Asset quality deteriorated sharply during the quarter with gross slippages of Rs. 12,715cr (annualized slippages ratio of 13.4%). Nearly Rs. 5,000cr of assets (from the steel sector) were recognized as NPAs from the RBI’s Asset Quality Review accounts. PNB refinanced assets worth Rs. 6,800cr under the 5:25 scheme and initiated SDR on assets worth Rs. 7,200cr during the quarter. GNPAs went up by 37.7% qoq; the GNPA ratio for the quarter stood at 8.47% vs 6.36% in 2QFY2016. Pain on the asset quality front is expected to continue as we expect the bank to report similar rise in NPA levels (as in 3QFY2016) in 4QFY2016 as well. The NNPA ratio stood at 5.86% vs 3.99% in 2QFY2016, a rise of 187bp qoq. Outlook and valuation: After the bank having seen a deceleration in its slippages in the previous two quarters, the trend has reversed now with substantial deterioration in asset quality witnessed during 3QFY2016. In our view, the asset quality is not likely to improve in the near term which will keep the return ratios of the bank weak. However, we believe the pricing correction has been harsh in the last one quarter. At the current market price, the stock trades at 0.5x FY2017E P/ABV. Given the current economic scenario we don’t expect any meaningful improvement in the bank’s asset quality, earnings as well as return ratios. Hence, we recommend a Neutral rating on the stock.

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CMP 77
Target Price
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)28,865.89
MCAP NSE (Rs in Cr)28,865.89
P/E (x)NM
EPS (Rs.)-20.96
BV (Rs.)185.02
Div Yield (%)0.00
FV (Rs.)2.00
P/BV (x)0.73
EV/Sales (x)11.89
EV/EBITDA (x)26.87

Shareholding Pattern (%)

Promoter65.0
Institution18.0
Foreign11.0
Public & Others6.0
Corporate0.0
Grand Total100.0

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