Punjab National Bank

Transcription

1 1QFY16 Result Update Institutional Equities Punjab National Bank 29 July 2015 Reuters: PNB.BO; Bloomberg: PNB IN Some Respite On Asset Quality Front Punjab National Bank (PNB) reported moderate 1QFY16 performance, with some respite witnessed in asset quality. Loan slippage (Rs33.8bn) stood at 3.6% against 5.8% in the previous quarter and 3.4% in the corresponding quarter a year ago. Loan recoveries/upgradations were healthy at Rs23.6bn for the quarter. PNB restructured Rs6.8bn of loans and did 5/25 restructuring of Rs26bn of loans during the quarter, taking the total stressed asset addition to Rs66.6bn. PNB posted a 49% drop in profit on higher-than-expected overall provisioning. Net interest margin or NIM compressed 52bps YoY, which can be attributed to the drop in yields and reversal of interest income on loan slippage and restructuring. Non-interest income grew 13% YoY, driven by recovery in written-of loan accounts amounting to Rs2.2bn. The bank made a healthy NPL provision of Rs12.9bn, which helped its provision coverage ratio to improve sequentially by 111bps to 59.3%. Credit disbursal grew 10% YoY, with higher growth witnessed in overseas and retail segments. We have retained Accumulate rating on PNB as we expect its asset quality to turn around in FY17. We have largely retained our FY16/FY17 ABV estimates. We have valued PNB at 1x FY17E P/ABV with a target price of Rs160. Valuation and outlook: Overall loan slippage was significantly lower than that of the previous quarter, taking the street by surprise. However, slippage for PNB has always been lower in the first quarter and it gradually rises in subsequent quarters. Therefore, next couple of quarters have to be monitored as to how the slippage trajectory moves. Loan upgradations and recoveries were healthy during the quarter, up 133% YoY. PNB has done 5/25 restructuring of Rs26b of loans and there is another Rs100bn of loans in the pipeline. Given the state of India s economy, we expect FY16 to be a washout year and material improvement in asset quality can only be expected from FY17. We derive comfort from PNB s relatively better capital cushion, efforts to improve the provision coverage ratio, strong retail franchise, one of the best expected RoAs among public sector banks and a not-soaggressive business growth strategy. We have valued PNB at 1.0x FY17E P/ABV, setting a target price of Rs160 and retaining Accumulate rating on it. We are participating in AsiaMoney s Brokers Poll We would be pleased if you vote for us as the feedback helps us align our equity research offerings to meet your requirements. Click Here ACCUMULATE Sector: Banking CMP: Rs143 Target Price: Rs160 Upside: 12% Hatim Broachwala, CFA hatim.broachwala@nirmalbang.com Key Data Current Shares O/S (mn) 1,854.6 Mkt Cap (Rsbn/US$bn) 263.1/ Wk H / L (Rs) 232/130 Daily Vol. (3M NSE Avg.) 5,121,627 Price Performance (%) 1 M 6 M 1 Yr Punjab National Bank 4.4 (31.4) (24.5) Nifty Index (0.5) (6.5) 7.6 Source: Bloomberg Y/E March (Rsmn) 1QFY16 1QFY15 4QFY15 YoY (%) QoQ (%) Interest income 1,20,347 1,15,887 1,16, Interest expenses 79,322 72,090 78, Net interest income 41,025 43,797 37,916 (6.3) 8.2 NIM (%) (52)bps 11 bps Non-interest income 13,973 12,364 18, (22.6) Operating income 54,998 56,161 55,967 (2.1) (1.7) Staff costs 15,496 17,674 15,069 (12.3) 2.8 Other operating expenses 8,181 7,235 8, (7.8) Total operating expenses 23,677 24,908 23,941 (4.9) (1.1) Cost- to-income (%) (130)bps 27bps Operating profit 31,321 31,253 32, (2.2) Provision 18,114 9,276 38, (52.8) PBT 13,207 21,977 (6,316) (39.9) (309.1) Tax 6,000 7,926 (9,381) (24.3) (164.0) -Effective tax rate bps (10,310) bps Net profit 7,207 14,051 3,065 (48.7) EPS (Rs) (49.9) BV (Rs) Deposits 51,77,328 44,49,201 50,13, Advances 38,08,802 34,74,853 38,05, Please refer to the disclaimer towards the end of the document.

2 Exhibit 1: Financial summary Y/E March (Rsmn) FY13 FY14 FY15 FY16E FY17E Net interest income 1,48,490 1,61,460 1,65,556 1,79,981 2,02,649 Pre-provision profit 1,09,073 1,13,844 1,19,548 1,37,240 1,50,767 PAT 47,476 33,425 30,616 47,739 70,551 EPS (Rs) ABV (Rs) P/E P/ABV Gross NPAs (%) Net NPAs (%) RoA (%) RoE (%) Respite in asset quality Loan slippage (Rs33.8bn) stood at 3.6% against 5.8% in the previous quarter and 3.4% in the corresponding quarter a year ago. Loan recoveries/upgradations were healthy at Rs23.6bn for the quarter. PNB restructured Rs6.8bn of loans and did 5/25 restructuring of Rs26bn of loans during the quarter, taking the total stressed asset addition to Rs66.6bn. There is additional 5/25 restructuring of Rs100bn of loans in the pipeline. Upgradations/recoveries stood at Rs23.6bn against Rs10.1bn in corresponding quarter a year ago. PNB has written off Rs13.2bn of loans during the quarter. Outstanding restructured loans increased 40bps QoQ to 10.5%. The management indicated that the loan restructuring pipeline in 2QFY16 will be miniscule. Gross non-performing assets (GNPAs) were down 8bps sequentially to 6.5%. Similarly, net non-performing assets (NNPAs) dipped marginally by 1bps sequentially to 4.1%. Backed by heavy provisioning, the provision coverage ratio improved 111bps sequentially to 59.3%. Margins dip 52bps YoY NIM compressed 52bps YoY, which can be attributed to the drop in yields and reversal of interest income on loan slippage and restructuring. Yield on advances, after factoring in reversal of interest income on loan slippage and restructuring, fell 72bps YoY to 9.6%.Cost of funds declined only 7bps sequentially to 5.1%. Moderate growth in balance sheet Deposits grew 16%, while advances increased 10%. Advances were mainly driven by a 31% growth in the overseas segment and a 25% growth in the retail segment. Agriculture and MSME (micro, small and medium enterprise) segments grew 17% and 9%, respectively. However, the large corporate segment posted a muted growth of 8% YoY. Within the retail segment, housing loans grew 27% and automobile loans posted 11% growth. CASA (current account savings account) deposit ratio dipped 160bps sequentially to 35.1%, while differential rate deposits were down 122bps to 1.2% of total deposits. Overseas deposits accounted for 10.0% of overall deposits. Moderate growth in non-interest income with muted fee income Non-interest income grew 13% YoY, driven by recovery in written-of loan accounts amounting to Rs2.2bn against Rs0.9bn in the corresponding quarter a year ago. Fee income declined 2% YoY. Treasury profits stood at Rs1.6bn against Rs1.5bn in the corresponding quarter a year ago. Forex income declined 3%. Operating expenses Operating expenses declined 8%, which was significantly below our estimate. Staff expenses dipped only 12% YoY as transitional liability was fully provided for last year. Other expenses grew 13%. PNB added 254 branches compared to a year ago, taking the total number of its branches to 6,594. Cost-to-income ratio stood at 43.1% for the quarter against 42.8% in the previous quarter and 44.4% in the corresponding quarter a year ago. 2 Punjab National Bank

3 Exhibit 2: Actual performance versus our estimates (Rsmn) 1QFY16 1QFY15 4QFY15 YoY (%) QoQ (%) 1QFY16E Devi. (%) Net interest income 41,025 43,797 37,916 (6.3) ,922 (4.4) Pre-provision profit 31,321 31,253 32, (2.2) 30, PAT 7,207 14,051 3,065 (48.7) ,750 (38.7) NII was down 4%, mainly on account of lower loan yields and reversal of interest income on loan slippage and restructuring. However, pre-provision profit was 2% above our estimate on account of lower operating expenses. PAT was significantly lower than our estimate on account of higher NPL provisioning of Rs12.9bn and investment depreciation of Rs3.8bn. 3 Punjab National Bank

4 Financials Exhibit 3: Income statement Y/E March (Rsmn) FY13 FY14 FY15 FY16E FY17E Interest income 4,18,858 4,32,233 4,63,154 5,04,542 5,52,865 Interest expenses 2,70,368 2,70,773 2,97,598 3,24,561 3,50,217 Net interest income 1,48,490 1,61,460 1,65,556 1,79,981 2,02,649 Fee income 23,448 25,794 27,449 30,743 34,432 Other income 13,920 14,479 21,205 25,275 27,238 Net revenue 1,85,858 2,01,733 2,14,210 2,35,999 2,64,319 Operating expenses 81,651 93,382 1,04,915 1,05,071 1,20,419 -Employee expenses 56,747 65,104 73,369 68,793 78,699 -Other expenses 24,904 28,278 31,546 36,278 41,720 Operating profit 1,04,207 1,08,351 1,09,295 1,30,928 1,43,900 Investment profit 4,866 5,493 10,253 6,312,867 Pre-provision profit 1,09,073 1,13,844 1,19,548 1,37,240 1,50,767 Provisions 43,856 66,939 79,975 69,041 49,980 -Loan loss provision 33,364 45,171 79,792 60,746 41,133 -Investment depreciation 1,036 7,828 (5,670) 0 0 -Other provisions 9,456 13,941 5,853 8,294 8,847 PBT 65,217 46,905 39,573 68,199 1,00,787 Tax 17,741 13,479 8,957 20,460 30,236 PAT 47,476 33,425 30,616 47,739 70,551 Exhibit 5: Balance sheet Y/E March (Rsmn) FY13 FY14 FY15 FY16E FY17E Equity capital 3,535 3,621 3,709 3,709 3,709 Reserves & surplus 3,23,234 3,55,332 3,87,086 4,25,683 4,84,857 Shareholders funds 3,26,769 3,58,953 3,90,795 4,29,392 4,88,566 Deposits 39,15,601 45,13,967 50,13,787 56,65,579 64,02,105 -Current deposits 2,98,743 3,14,992 3,35,808 4,33,577 5,44,056 -Saving deposits 12,34,701 14,13,729 15,01,997 16,97,535 19,18,492 -Term deposit 23,82,157 27,85,246 31,75,982 35,34,468 39,39,557 Borrowings 3,96,210 4,80,344 4,56,705 5,27,959 6,08,475 -Subordinate debt 1,08,953 1,16,303 1,79,303 2,14,930 2,55,188 Other liabilities 1,50,190 1,50,934 1,72,049 2,01,872 2,21,015 Total liabilities 47,88,770 55,04,199 60,33,336 68,24,802 77,20,160 Cash/equivalent 2,71,353 4,52,184 5,59,342 7,02,293 8,63,827 Advances 30,87,252 34,92,691 38,05,344 42,94,188 48,46,582 Investments 12,98,962 14,37,855 15,12,823 16,43,181 17,90,487 Fixed assets 33,577 34,197 35,515 40,765 46,015 Other assets 97,626 87,271 1,20,312 1,44,374 1,73,249 Total assets 47,88,770 55,04,199 60,33,336 68,24,802 77,20,160 Exhibit 4: Key ratios Y/E March FY13 FY14 FY15 FY16E FY17E Growth (%) NII growth Pre-provision profit growth PAT growth Business (%) Deposit growth Advances growth Business growth CD CASA deposit Operating efficiency (%) Cost-to-income Cost-to-assets Productivity (Rsmn) Business per branch Business per employee Profit per branch Profit per employee Spread (%) Yield on advances Yield on investments Cost of deposits Yield on assets Cost of funds NIM Capital adequacy (%) Tier I Tier II Total CAR Asset quality (%) Gross NPAs Net NPAs Provision coverage Provision coverage (incl. write-off) Slippage Credit costs Return (%) RoE RoA RoRWA Per share EPS BV ABV Valuation P/E P/BV P/ABV Punjab National Bank

5 Rating track Date Rating Market price (Rs) Target price (Rs) 28 July 2014 Accumulate October 2014 Accumulate October 2014 Accumulate 928 1,030 8 January 2015* Accumulate February 2015 Accumulate May 2015 Accumulate July 2015 Accumulate * Post stock split 5 Punjab National Bank

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