Punjab National Bank

Transcription

1 Asset quality worries intensifies May 08, 2015 Nitin Kumar Pritesh Bumb Rating Reduce Price Rs146 Target Price Rs155 Implied Upside 6.2% Sensex 27,105 Nifty 8,192 (Prices as on May 08, 2015) Trading data Market Cap. (Rs bn) Shares o/s (m) 1, M Avg. Daily value (Rs m) Major shareholders Promoters 59.86% Foreign 16.23% Domestic Inst % Public & Other 5.48% Stock Performance (%) 1M 6M 12M Absolute (4.6) (22.5) (6.7) Relative 0.9 (19.8) (28.0) How we differ from Consensus EPS (Rs) PL Cons. % Diff Price Performance (RIC: PNBK.BO, BB: PNB IN) (Rs) May 14 Jul 14 Sep 14 Source: Bloomberg Nov 14 Jan 15 Mar 15 May 15 PNB maintained its disappointing performance trend with annualized slippage run rate increasing to its highest level at ~8% annualized. The bank also restructured loans worth Rs78.8bn during the quarter taking the total standard restructured portfolio to 10.1%. NII growth was impacted by FITL provisioning and interest reversals while core other income grew at modest 5% YoY. Margins thus declined by 42bp QoQ to 2.79% though CASA mix improved to 40.6%. High slippage and bulky standard restructured portfolio (Rs383 bn) remains a key overhang on asset quality and earnings performance. We remain concerned as 35 40% of book will be moving out of moratorium in next months. We cut FY16E/FY17E earnings by 16%/22% and revise our PT to Rs155 (from Rs175). Retain REDUCE. Operating metrics continues to worsen: PNB reported 5% YoY decline in NII affected by interest reversals, FITL provisioning and shift towards low yielding high quality corporate segment. Core other income also reported modest 5% YoY growth. Margins thus declined by 42bp QoQ to 2.79% though management guided it to improve to ~3.2% in FY16. Tax refund of Rs9.38bn, 26% QoQ decline in staff expenses and treasury gains of Rs5.38bn helped lift earnings but steep rise in provisions (credit cost of ~390bps) resulted in 62% YoY decline in PAT. Asset quality shock continues; slippages from restructured assets a big overhang: Fresh slippages of Rs74.2 bn (~8% annualized, ~33% on account of slippages from restructured assets) was highest ever while fresh restructuring also stood elevated at Rs78.8 bn. GNPA ratio increased to 6.55% while heavy provisioning resulted in slight improvement in coverage ratio. We remain concerned on the fallout from restructured book as at least 35 40% of book will be moving out of moratorium in next months while recovery & upgrade rate for the bank has declined significantly over past few years. Capital adequacy is a silver lining; lowering PT as we cut earnings: PNB s capital adequacy improved to 12.2% (9.3% Tier I) post AT 1 issuance and capital infusion from the government which gives it an advantage over other PSU banks. However owing to weak performance we cut FY16E/FY17E earnings by 16%/22% respectively and lower our PT to Rs155 (from Rs175). Retain REDUCE. Key financials ( Y/e March) E 2016E 2017E Net interest income (Rs m) 161, , , ,542 Growth (%) Operating profit (Rs m) 113, , , ,750 PAT (Rs m) 33,426 30,609 40,669 47,639 EPS (Rs) Growth (%) (31.8) (10.6) Net DPS (Rs) Profitability & Valuation E 2016E 2017E NIM (%) RoAE (%) RoAA (%) P / BV (x) P / ABV (x) PE (x) Net dividend yield (%) Source: Company Data; PL Research Q4FY15 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 NII growth was disappointing on slower growth in advances and high interest reversals from NPAs Other income was high on better treasury income and recovery from written off accounts, while core fees growth was flattish mainly supported from third party distribution income Exhibit 1: PNB Q4FY15 PAT aided by tax write backs; pain in asset quality continues P&L (Rs mn) Q4FY15 Q4FY14 YoY gr. (%) Q3FY15 QoQ gr. (%) Interest Income 116, , , Interest Expense 78,589 70, , Net Interest Income (NII) 37,916 40,018 (5.3) 42,331 (10.4) Treasury income 5,380 1, , Other income exc. Treasury 18,051 13, , Total income 55,967 53, , Operating expenses 23,940 22, ,732 (13.7) Staff expenses 15,069 14, ,286 (25.7) Other expenses 8,872 7, , Operating profit 32,027 31, , Core operating profit 26,647 29,844 (10.7) 25, Total provisions 38,342 21, , Profit before tax (6,315) 10,347 (161.0) 12,830 (149.2) Tax (9,381) 2,284 (510.7) 5,084 (284.5) Profit after tax 3,066 8,064 (62.0) 7,746 (60.4) Balance sheet (Rs mn) Deposits 5,013,786 4,513, ,841, Advances 3,805,344 3,492, ,624, Gross NPA (Rs mn) 256, , , Net NPA (Rs mn) 153,965 99, , O/S Std. restr. assets (Rs mn) 423, , , NIMs slide as interest reversals were high on substantial increase in asset quality impairment Profitability ratios RoaA (38) 0.5 (33) RoaE (610) 8.3 (507) NIM (41) 3.2 (42) Yield on Advances (43) 9.9 (35) Cost of Deposits (10) 6.1 (7) Asset quality saw further deterioration on high slippages from sugar, iron & steel, infrastructure and other industries. Asset Quality Gross NPL ratio Net NPL ratio Coverage ratio (739) Std. rest. Assets/ Total Business & Other Ratios Low cost deposit mix (73) Cost income ratio (743) Non int. inc / total income Credit deposit ratio (148) CAR Tier I May 08,

3 Exhibit 2: Loan growth remained muted on weak corporate demand Exhibit 3: Core fees remains sluggish but supported by TPD income 35.0% Advances growth YoY(%) 40.0% Core fee growth (%) 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 30.0% 20.0% 10.0% 0.0% 10.0% 0.0% 20.0% Exhibit 4: CASA profile remains decent in challenging environment Exhibit 5: NIMs slide on high interest reversals and FITL provisioning 42.0% 40.0% 38.0% 36.0% 34.0% 32.0% CASA (%) 4.10% 3.90% 3.70% 3.50% 3.30% 3.10% 2.90% 2.70% 2.50% NIM (%) Slippages rate of 8.2% annualized remains one of the highest recognized in any quarter.fresh stressed asset formation was Rs153bn in Q4FY15 with fresh restructuring of Rs78.8bn to seize forbearance benefit. Exhibit 6: Pain in asset quality highest among PSB, yet not over PNB Addition 30,500 15,050 36,950 29,580 35,650 51,930 74,240 Cash Recovery 10,640 7,200 13,100 7,490 10,710 10,820 13,540 Up gradation 4,780 3, ,640 2,487 5,870 14,210 Write off 730 3,840 14,090 12,210 10,990 24,160 11,660 GNPAs 165, , , , , , ,960 Annualized Slippages % 3.9% 1.9% 4.4% 3.4% 4.0% 5.7% 8.2% Restructuring Addition 27,690 21,500 32,860 14,520 32,970 25,580 78,800 % of loans 3.53% 2.64% 3.76% 1.67% 3.69% 2.82% 8.70% May 08,

4 Exhibit 7: Credit cost remains high at ~390 bps on elevated accretion in stressed assets Exhibit 8: Asset quality pain continues on high slippages, one third of which came from restructured portfolio 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Credit Cost 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Gross NPA (%) Net NPA (%) Exhibit 9: RoA decomposition tree RoA decomposition FY11 FY12 FY13 FY14 FY15E FY16E FY17E Interest income Interest expenses Net interest income Treasury income Other Inc. from operations Total income Employee expenses Other operating expenses Operating profit Tax Loan loss provisions Net profit Exhibit 10: We cut PT to Rs155 per share (from Rs175) PT calculation and upside Fair price EVA 150 Fair price P/ABV 159 Average of the two 155 Target P/ABV 0.8 Target P/ABV adj. for 20% slippages from restructured assets 0.9 Target P/E 6.0 Current price, Rs 146 Upside (%) 6% Dividend yield (%) 2% Total return (%) 8% May 08,

5 Exhibit 11: We cut our earnings by 16% & 22% for FY16E & FY17E respectively on higher credit costs and lower NII as business growth remains subdued (Rs mn) Old Revised % Change FY15E FY16E FY15E FY16E FY15E FY16E Net interest income 190, , , ,542 (3.4) (6.7) Operating profit 129, , , , (4.6) Net profit 48,576 61,154 40,669 47,639 (16.3) (22.1) EPS (Rs) (18.3) (24.0) ABVPS (Rs) (5.1) (4.6) Price target (Rs) (11.9) Recommendation REDUCE REDUCE May 08,

6 Income Statement (Rs m) Int. Earned from Adv. 323, , , ,689 Int. Earned from Invt. 102, , , ,257 Others 5,643 9,210 10,233 6,139 Total Interest Income 432, , , ,086 Interest expense 270, , , ,544 NII 161, , , ,542 Growth (%) Treasury Income 5,494 10,230 5,530 5,530 NTNII 40,274 48,677 59,857 69,011 Non Interest Income 45,767 58,907 65,387 74,541 Total Income 478, , , ,627 Growth (%) Operating Expense 93, , , ,333 Operating Profit 113, , , ,750 Growth (%) NPA Provisions 45,171 79,780 63,289 66,792 Investment Provisions 7,828 (5,660) 1,415 (354) Total Provisions 66,939 79,980 71,290 75,694 PBT 46,905 39,565 58,098 68,056 Tax Provisions 13,479 8,957 17,429 20,417 Effective Tax Rate (%) PAT 33,426 30,609 40,669 47,639 Growth (%) (29.6) (8.4) Balance Sheet (Rs m) Par Value No. of equity shares 1,810 1,855 1,855 1,855 Equity 3,621 3,709 3,709 3,709 Networth 358, , , ,477 Adj. Networth 259, , , ,525 Deposits 4,513,968 5,013,786 5,685,633 6,663,562 Growth (%) Low Cost deposits 1,728,721 1,990,473 2,245,825 2,665,425 % of total deposits Total Liabilities 5,504,197 6,033,336 6,904,063 8,033,101 Net Advances 3,492,691 3,805,344 4,360,924 5,180,778 Growth (%) Investments 1,437,855 1,512,824 1,938,833 2,153,400 Total Assets 5,504,197 5,825,654 6,904,063 8,033,101. Quarterly Financials (Rs m) Y/e March Q1FY15 Q2FY15 Q3FY15 Q4FY15 Interest Income 115, , , ,505 Interest Expense 72,090 73,109 73,810 78,589 Net Interest Income 43,797 41,512 42,331 37,916 Non Interest Income 12,364 15,584 12,908 18,051 CEB Treasury 1,490 1,250 2,110 5,380 Net Total Income 56,161 57,096 55,239 55,967 Operating Expenses 24,908 28,335 27,732 23,940 Employee Expenses 17,674 20,341 20,286 15,069 Other Expenses 7,235 7,995 7,446 8,872 Operating Profit 31,253 28,760 27,507 32,027 Core Operating Profit 29,763 27,510 25,397 26,647 Provisions 9,276 17,679 14,678 38,342 Loan loss provisions 13,360 16,380 17,230 32,810 Investment Depreciation (3,810) (260) (4,450) 2,860 Profit before tax 21,977 11,081 12,830 (6,315) Tax 7,926 5,328 5,084 (9,381) PAT before EO 14,051 5,753 7,746 3,066 Extraordinary item PAT 14,051 5,753 7,746 3,066 Key Ratios CMP (Rs) Equity Shrs. Os. (m) 1,810 1,855 1,855 1,855 Market Cap (Rs m) 263, , , ,201 M/Cap to AUM (%) EPS (Rs) Book Value (Rs) Adj. BV (100%) (Rs) P/E (x) P/BV (x) P/ABV (x) DPS (Rs) Dividend Yield (%) Profitability (%) NIM RoAA RoAE Efficiency Cost Income Ratio (%) C D Ratio (%) Business per Emp. (Rs m) Profit per Emp. (Rs lacs) Business per Branch (Rs m) 1,291 1,355 1,442 1,589 Profit per Branch (Rs m) Asset Quality Gross NPAs (Rs m) 188, , , ,491 Net NPAs (Rs m) 99, ,269 77,972 50,952 Gr. NPAs to Gross Adv. (%) Net NPAs to Net Adv. (%) NPA Coverage (%) May 08,

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