3QFY2016 Result Update | Banking
February 12, 2016
Punjab National Bank
NEUTRAL
CMP
`77
Performance Highlights
Target Price
-
Particulars (` cr)
3QFY16 2QFY16
% chg (qoq) 3QFY15
% chg (yoy)
Investment Period
-
NII
4,120
4,322
(4.7)
4,233
(2.7)
Pre-prov. profit
2,918
2,939
(0.7)
2,751
6.1
Stock Info
PAT
51
621
(91.8)
775
(93.4)
Source: Company, Angel Research
Sector
Banking
Market Cap (` cr)
15,071
Punjab National Bank (PNB) has come out with a disappointing set of numbers
Beta
1.3
for 3QFY2016. Although we had expected the results to be unimpressive, but the
52 Week High / Low
180/72
quantum of rise in the Gross NPAs has surprised us. The bank reported a PAT of
A vg. Daily Volume
73,24,739
only `51cr for the quarter despite a tax write back of `908cr.
Face Value (`)
2
Loan growth remained subdued; NIM under pressure: For the quarter, advances
BSE Sensex
22,952
Nifty
6,976
growth at 8.4% yoy remained subdued, while deposit growth was decent at 13.3%
Reuters Code
PNBK.NS
yoy. CASA deposits grew by 14.3% yoy with Current deposits growing by 22.9%
Bloomberg Code
[email protected]
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 `3,775cr
Shareholding Pattern (%)
compared to `1,882cr in the sequential previous quarter, resulting in a loss at the
Promoters
62.1
PBT level to the tune of `857cr. The bank got a tax write back of `908cr; as a
MF / Banks / Indian Fls
20.2
result the bank generated a PAT of `51cr for the quarter.
FII / NRIs / OCBs
12.1
Sharp deterioration in asset quality: Asset quality deteriorated sharply during the
Indian Public / Others
5.7
quarter with gross slippages of `12,715cr (annualized slippages ratio of 13.4%).
Nearly `5,000cr of assets (from the steel sector) were recognized as NPAs from
Abs. (%)
3m
1yr
3yr
the RBI’s Asset Quality Review accounts. PNB refinanced assets worth `6,800cr
Sensex
(11.3)
(19.6)
17.9
under the 5:25 scheme and initiated SDR on assets worth `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%
PNB
(42.9)
(54.7)
(55.3)
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
3-year price chart
NNPA ratio stood at 5.86% vs 3.99% in 2QFY2016, a rise of 187bp qoq.
250
Outlook and valuation: After the bank having seen a deceleration in its slippages
200
in the previous two quarters, the trend has reversed now with substantial
150
deterioration in asset quality witnessed during 3QFY2016. In our view, the asset
100
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
50
last one quarter. At the current market price, the stock trades at 0.5x FY2017E
0
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.
Source: Company, Angel Research
Key financials
Y/E March (` cr)
FY2014
FY2015
FY2016E
FY2017E
Vaibhav Agrawal
NII
16,146
16,556
17,101
19,266
022 - 3935 7800 Ext: 6808
% chg
8.7
2.5
3.3
12.7
[email protected]
Net profit
3,343
3,061
1,297
2,857
% chg
(29.6)
(8.4)
(57.6)
120.2
Siddharth Purohit
NIM (%)
3.2
2.9
2.8
2.8
022 - 3935 7800 Ext: 6872
EPS (`)
18.5
16.5
7.0
15.4
[email protected]
P/E (x)
4.2
4.6
11.0
5.0
P/ABV (x)
0.5
0.5
0.6
0.5
Chintan Shah
RoA (%)
0.6
0.5
0.2
0.4
022 - 4000 3600 Ext: 6828
RoE (%)
10.2
8.5
3.4
7.2
[email protected]
Source: Company, Angel Research; Note: CMP as of February11, 2016
Please refer to important disclosures at the end of this report
1
Punjab National Bank | 3QFY2016 Result Update
Exhibit 1: 3QFY2016 performance
Particulars (` cr)
3QFY16
2QFY16
% chg (qoq)
3QFY15
% chg (yoy)
FY2015
FY2014
% chg
Interest earned
12,221
12,345
(1.0)
11,614
5.2
46,315
43,223
7.2
- on Advances / Bills
8,881
9,064
(2.0)
8,736
1.7
34,794
32,393
7.4
- on investments
3,119
3,029
3.0
2,612
19.4
10,600
10,266
3.3
- on balance with RBI & others
184
218
(15.6)
211
(12.8)
632
362
74.5
- on others
36
35
3.1
55
(35.3)
289
202
42.9
Interest Expended
8,101
8,023
1.0
7,381
9.8
29,760
27,077
9.9
Net Interest Income
4,120
4,322
(4.7)
4,233
(2.7)
16,556
16,146
2.5
Other income
1,671
1,357
23.1
1,291
29.4
5,891
4,577
28.7
Other income excl. treasury
1,342
1,019
31.7
997
34.6
4,529
3,843
17.9
- Fee Income
823
784
5
888
(7.3)
2,831
2,380
18.9
- Treasury Income incl. MF Div.
329
338
(2.7)
294
11.9
1,362
734
85.6
- Recov. from written off a/cs
519
236
119.9
109
376.1
1,018
514
98.1
- Others
(0)
(1)
(63.6)
(0)
90.5
680
949
(28.4)
Operating income
5,790
5,679
2.0
5,524
4.8
22,446
20,723
8.3
Operating expenses
2,872
2,740
4.8
2,773
3.6
10,492
9,338
12.4
- Employee expenses
1,991
1,878
6.1
2,029
(1.8)
7,337
6,510
12.7
- Other Opex
881
863
2.1
745
18.3
3,155
2,828
11.6
Pre-provision Profit
2,918
2,939
(0.7)
2,751
6.1
11,955
11,384
5.0
Provisions & contingencies
3,776
1,882
100.6
1,468
157.2
7,998
6,694
19.5
- Provisions for NPAs
3,767
2,031
85.5
1,723
118.6
7,978
4,518
76.6
- Other Provisions
9
(149)
(105.7)
(255)
(103.3)
20
1,394
(98.6)
PBT
(858)
1,056
(181.2)
1,283
(166.8)
3,957
4,691
(15.6)
Provision for Tax
(909)
435
(308.7)
508
(278.7)
896
1,348
(33.6)
PAT
51
621
(91.8)
775
(93.4)
3,062
3,343
(8.4)
Effective Tax Rate (%)
105.9
41.2
6473bp
39.6
6632bp
22.6
28.7
(610)bp
Source: Company, Angel Research
February 12, 2016
2
Punjab National Bank | 3QFY2016 Result Update
Exhibit 2: 3QFY2016 performance analysis
Particulars
3QFY16
2QFY16
% chg (qoq) 3QFY15
% chg (yoy)
Advances (` cr)
3,92,937 3,80,958
3.1
3,62,496
8.4
Deposits (` cr)
5,48,532 5,39,924
1.6
4,84,138
13.3
Credit-to-Deposit Ratio (%)
71.6
70.6
108bp
74.9
(324)bp
Current deposits (` cr)
36,462
36,863
(1.1)
29,674
22.9
Saving deposits (` cr)
1,61,460 1,57,683
2.4
1,43,463
12.5
CASA deposits (` cr)
1,97,922 1,94,546
1.7
1,73,137
14.3
Reported CASA ratio (%)
40.4
40.2
15bp
39.4
94bp
CAR (%)
11.3
12.2
(95)bp
11.5
(29)bp
Tier 1 CAR (%)
8.5
9.4
(84)bp
8.5
2bp
Profitability Ratios (%)
Cost of deposits
5.81
6.0
(14)bp
6.1
(30)bp
Yield on advances
9.47
9.76
(29)bp
9.9
(39)bp
Yield on investments
7.9
8.0
(3)bp
8.1
(12)bp
Yield on funds
7.39
7.68
(29)bp
8.0
(61)bp
Cost of funds
4.9
5.0
(9)bp
5.1
(19)bp
Reported NIM
2.75
3.0
(22)bp
3.2
(46)bp
Cost-to-income ratio
49.6
48.3
135bp
50.2
(60)bp
Asset quality
Gross NPAs (` cr)
34,338
24,945
37.7
22,211
54.6
Gross NPAs (%)
8.47
6.36
211bp
6.0
250bp
Net NPAs (` cr)
22,983
15,187
51.3
13,788
66.7
Net NPAs (%)
5.86
4.0
187bp
3.8
204bp
Provision Coverage Ratio (%)
53.9
61.4
(750)bp
57.3
(342)bp
Slippage ratio (%)
13.4
2.7
1062bp
5.9
741bp
Credit cost (%)
2.4
1.4
109bp
1.3
121bp
Source: Company, Angel Research
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. The C/D ratio stood at 71.6%. 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 `3,775cr compared to
`1,882cr in the sequential previous quarter, resulting in a loss at the PBT level to
the tune of `857cr. The bank got a tax write back of `908cr; as a result the bank
generated a PAT of `51cr for the quarter. Adjusting for the tax write back, the
bottom-line numbers would be worse.
February 12, 2016
3
Punjab National Bank | 3QFY2016 Result Update
Exhibit 3: Cost of funds down by 9bp qoq; 19bp yoy
Exhibit 4: NIM declines by 22bp qoq; 46bp yoy
(%)
(%)
5.30
3.30
5.22
3.21
3.20
5.20
5.09
3.10
5.10
5.07
2.97
3.00
4.99
2.90
5.00
2.90
2.79
4.90
2.80
2.75
4.90
2.70
4.80
2.60
4.70
2.50
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Source: Company, Angel Research
Source: Company, Angel Research
Non-interest income grows at 35% (excluding treasury)
Other income (excl. treasury) was strong for the quarter, witnessing a growth of
29.4%, aided by recoveries and fee growth.
Exhibit 5: Recoveries aid non-interest income performance
Particulars (` cr)
3QFY16
2QFY16 % chg (qoq) 3QFY15
% chg (yoy)
Fee based Income
823
784
5.0
888
(7.3)
Treasury
329
338
(2.7)
294
11.9
Recoveries
519
236
119.9
109
376.1
Other income
1,671
1,358
23.0
1,291
29.4
Other income excl. treasury
1,342
1,019
31.6
997
34.6
Source: Company, Angel Research
Sharp deterioration in the asset quality
Asset quality deteriorated sharply during the quarter with gross slippages of
`12,715cr (annualized slippages ratio of 13.4%). Nearly `5,000cr of assets (from
the steel sector) were recognized as NPAs from the RBI’s Asset Quality Review
accounts. PNB refinanced assets worth `6,800cr under the 5:25 scheme and
initiated SDR on assets worth `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. The
outstanding standard restructured book stood at `35,004cr, which is 10.4% of the loan
book. The Management has highlighted that stressed asset formation would likely
continue as long as the macro economic scenario doesn’t improve.
February 12, 2016
4
Punjab National Bank | 3QFY2016 Result Update
Exhibit 6: Slippages ratio rises sharply qoq
Exhibit 7: ...resulting in higher GNPA ratio qoq
Slippages (%)
Credit cost (%, RHS)
Gross NPAs (%)
Net NPAs (%)
PCR (%, RHS)
2.4
9.00
61.4
62.0
16.0
2.2
2.5
8.00
59.3
14.0
60.0
2.0
7.00
58.2
12.0
57.3
6.00
58.0
10.0
1.3
1.5
1.2
5.00
56.0
8.0
0.8
4.00
53.9
6.0
1.0
3.00
54.0
4.0
2.00
0.5
52.0
2.0
1.00
-
-
-
50.0
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Source: Company, Angel Research
Source: Company, Angel Research;
Cost-to-income ratio rises
Operating expenses grew 3.6% yoy; staff expenses declined by 1.8% yoy for the
quarter. A slightly higher opex and pressure on NIM led to an increase in the
cost/income ratio by 135bp qoq to 49.6%, given the fact that the bank also
opened 57 new branches during the quarter.
Exhibit 8: Steady branch expansion
Exhibit 9: Cost to income ratio decreases yoy
Branches
ATMs (RHS)
Cost-to-income ratio (%)
Opex to average assets (%, RHS)
6,800
9,000
52.0
2.5
8,884
50.0
1.9
6,700
8,622
8,800
1.8
1.8
2.0
1.6
8,437
48.0
1.6
6,600
8,600
1.5
8,348
46.0
6,500
8,400
8,209
44.0
1.0
6,400
8,200
42.0
0.5
6,300
8,000
40.0
6,200
7,800
38.0
-
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
Source: Company, Angel Research
Source: Company, Angel Research
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.
February 12, 2016
5
Punjab National Bank | 3QFY2016 Result Update
Exhibit 10: Recommendation summary
CMP
Tgt. Price
Upside
FY2017E
FY2017E
FY2017E
FY15-17E
FY2017E
FY2017E
Company
Reco.
(`)
(`)
(%)
P/ABV (x)
Tgt. P/ABV (x)
P/E (x)
EPS CAGR (%)
RoA (%)
RoE (%)
HDFCBk
Buy
976
1,262
29.3
2.9
3.8
16.0
22.4
1.9
19.7
ICICIBk*
Buy
199
254
27.3
1.4
1.3
8.2
13.5
1.6
14.7
YesBk
Accumulate
714
767
7.5
1.9
2.0
10.2
20.5
1.6
19.6
AxisBk
Buy
378
494
30.8
1.5
2.0
8.7
18.4
1.8
18.9
SBI*
Accumulate
154
176
14.2
0.7
0.7
6.2
19.1
0.8
13.1
FedBk
Neutral
44
-
-
0.8
0.9
7.9
(2.9)
0.9
10.8
SIB
Neutral
17
-
-
0.6
0.6
5.2
21.6
0.7
11.6
BOB
Neutral
116
-
-
0.6
0.6
5.4
18.1
0.6
10.7
PNB
Neutral
77
-
-
0.5
0.5
5.0
(3.4)
0.4
7.2
BOI
Neutral
85
-
-
0.2
1.1
2.5
14.1
0.3
7.6
IndBk
Neutral
80
-
-
0.2
0.2
2.0
(15.7)
0.8
12.8
Vijaya Bank
Neutral
31
-
-
0.4
0.4
2.5
40.3
0.7
14.6
OBC
Neutral
85
-
-
0.2
0.3
4.3
248.5
0.2
4.5
Allahabad Bank
Neutral
43
-
-
0.2
0.2
1.9
45.4
0.5
10.0
UnionBk
Neutral
119
-
-
0.3
0.3
3.1
17.7
0.6
11.3
CanBk
Neutral
173
-
-
0.3
0.2
2.5
10.6
0.5
11.0
IDBI#
Neutral
52
-
-
0.3
0.5
3.8
59.5
0.6
9.1
DenaBk
Neutral
28
-
-
0.0
0.3
0.3
44.0
0.4
7.7
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF
February 12, 2016
6
Punjab National Bank | 3QFY2016 Result Update
Company Background
Punjab National Bank is the country's third-largest PSU bank, with a balance sheet
size of around `6.4lakh cr and a pan-India network of around 6,692 branches.
The bank's network is primarily spread across north India, ie in Punjab, Haryana
and Uttar Pradesh. Almost 64% of its branches are based in rural and semi-urban
hinterland, which results in a large legacy of low-cost CASA deposits.
February 12, 2016
7
Punjab National Bank | 3QFY2016 Result Update
Income statement
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Net Interest Income
13,414
14,857
16,146
16,556
17,101
19,266
- YoY Growth (%)
13.6
10.8
8.7
2.5
3.3
12.7
Other Income
4,203
4,216
4,577
5,891
6,021
6,756
- YoY Growth (%)
16.3
0.3
8.6
28.7
2.2
12.2
Operating Income
17,617
19,073
20,723
22,446
23,122
26,022
- YoY Growth (%)
14.2
8.3
8.7
8.3
3.0
12.5
Operating Expenses
7,003
8,165
9,338
10,492
10,686
11,755
- YoY Growth (%)
10.0
16.6
14.4
12.3
1.9
10.0
Pre - Provision Profit
10,614
10,908
11,384
11,955
12,436
14,267
- YoY Growth (%)
17.2
2.8
4.4
5.0
4.0
14.7
Prov. & Cont.
3,577
4,386
6,694
7,998
10,910
10,066
- YoY Growth (%)
43.6
22.6
52.6
19.5
36.4
(7.7)
Profit Before Tax
7,037
6,522
4,691
3,957
1,526
4,202
- YoY Growth (%)
7.2
(7.3)
(28.1)
(15.6)
(61.4)
175.3
Prov. for Taxation
2,153
1,774
1,348
895
229
1,345
- as a % of PBT
30.6
27.2
28.7
22.6
15.0
32.0
PAT
4,884
4,748
3,343
3,061
1,297
2,857
- YoY Growth (%)
10.2
(2.8)
(29.6)
(8.4)
(57.6)
120.2
Balance sheet
Y/E March (` cr)
FY12
FY13
FY14
FY15
FY16E
FY17E
Share Capital
339
354
362
371
371
371
Reserve & Surplus
27,476
32,323
35,533
38,707
39,722
41,950
Deposits
3,79,588
3,91,560
4,51,397
5,01,379
5,56,530
6,28,879
- Growth (%)
21.3
3.2
15.3
11.1
11.0
13.0
Borrowings
26,074
28,726
36,404
34,331
36,570
41,128
Tier 2 Capital
11,190
10,895
11,630
11,340
11,056
10,780
Other Liab. & Prov.
13,524
15,019
15,093
17,206
20,661
24,668
Total Liabilities
4,58,192
4,78,877
5,50,420
6,03,334
6,64,911
7,47,775
Cash Balances
18,493
17,886
22,246
24,225
27,827
31,444
Bank Balances
10,335
9,249
22,973
31,709
34,945
39,301
Investments
1,22,703
1,29,896
1,43,786
1,51,282
1,70,301
1,97,569
Advances
2,93,775
3,08,725
3,49,269
3,80,534
4,14,782
4,60,409
- Growth (%)
21.3
5.1
13.1
9.0
9.0
11.0
Fixed Assets
3,169
3,358
3,420
3,552
3,797
4,142
Other Assets
9,718
9,763
8,727
12,031
13,259
14,912
Total Assets
4,58,192
4,78,877
5,50,420
6,03,334
6,64,911
7,47,775
- Growth (%)
21.1
4.5
14.9
9.6
10.2
12.5
February 12, 2016
8
Punjab National Bank | 3QFY2016 Result Update
Ratio analysis
Y/E March
FY12
FY13
FY14
FY15
FY16E
FY17E
Profitability ratios (%)
NIMs
3.3
3.3
3.2
2.9
2.8
2.8
Cost to Income Ratio
39.8
42.8
45.1
46.7
46.2
45.2
RoA
1.2
1.0
0.6
0.5
0.2
0.4
RoE
21.1
16.5
10.2
8.5
3.4
7.2
B/S ratios (%)
CASA Ratio
35.3
39.2
38.3
36.7
37.0
37.3
Credit/Deposit Ratio
77.4
78.8
77.4
75.9
74.5
73.2
CAR
12.6
12.3
12.1
11.9
11.0
10.2
- Tier I
9.3
9.4
9.3
9.3
8.7
8.1
Asset Quality (%)
Gross NPAs
2.9
4.3
5.3
6.6
10.0
11.1
Net NPAs
1.5
2.3
2.8
4.0
6.7
6.2
Slippages
2.7
2.9
3.4
5.3
7.8
4.8
Loan Loss Prov. /Avg. Assets
0.6
0.7
0.9
1.4
1.6
1.4
Provision Coverage
62.7
58.8
59.1
57.5
52.5
57.5
Per Share Data (`)
EPS
28.8
26.9
18.5
16.5
7.0
15.4
ABVPS (75% cover.)
146.7
160.4
168.7
168.9
138.1
157.2
DPS
22.0
27.0
10.0
17.3
6.5
14.5
Valuation Ratios
PER (x)
2.7
2.9
4.2
4.6
11.0
5.0
P/ABVPS (x)
0.5
0.5
0.5
0.5
0.6
0.5
Dividend Yield
28.7
35.2
13.0
22.5
8.5
18.9
DuPont Analysis
NII
3.2
3.2
3.1
2.9
2.7
2.7
(-) Prov. Exp.
0.9
0.9
1.3
1.4
1.7
1.4
Adj. NII
2.4
2.2
1.8
1.5
1.0
1.3
Treasury
0.1
0.1
0.1
0.2
0.2
0.2
Int. Sens. Inc.
2.4
2.3
1.9
1.6
1.1
1.5
Other Inc.
0.9
0.8
0.8
0.9
0.8
0.8
Op. Inc.
3.4
3.1
2.7
2.5
1.9
2.3
Opex
1.7
1.7
1.8
1.8
1.7
1.7
PBT
1.7
1.4
0.9
0.7
0.2
0.6
Taxes
0.5
0.4
0.3
0.2
0.0
0.2
RoA
1.2
1.0
0.6
0.5
0.2
0.4
Leverage
18.0
16.3
15.7
16.0
16.6
17.7
RoE
21.1
16.5
10.2
8.5
3.4
7.2
February 12, 2016
9
Punjab National Bank | 3QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Punjab National Bank
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15%)
February 12, 2016
10