CMP: INR155 TP: INR184 (+19%) Buy

Transcription

1 19 May QFY17 Results Update Sector: Financials Punjab National Bank BSE SENSEX S&P CNX 30,465 9,428 Bloomberg PNB IN Equity Shares (m) 2,128 M.Cap.(INRb)/(USDb) / Week Range (INR) 186 / 71 1, 6, 12 Rel. Per (%) -4/-13/90 Avg Val, INRm 1753 Free float (%) 35.0 Financials & Valuations (INR b) Y/E March E 2019E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) NM BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) Payout (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) CMP: INR155 TP: INR184 (+19%) Buy Weak operating performance; High write-offs and recoveries negate impact of relapse from OSRL PNB reported 90% beat on operating profit, despite 8% miss on NII. One-off employee expense-related provisions write-back (INR20.3b) and a strong contribution from non-core income (32% of PPoP) led to the strong beat. QoQ improvement in PCR by 380bp QoQ (~40%) and higher write-offs (INR26.3b) led to a decline in NNPA ratio to 7.8% from 9.1% a quarter ago. Relapse from OSRL and higher slippages from Agri portfolio (due to loan waiver in UP) led to NIM contraction of 13bp QoQ to 2.2%. Total slippages came in at INR69b (for the quarter, 6.7% annualized slippage ratio), of which slippages from restructured book were INR30b. OSRL declined to 2.8% (INR119b) of loans v/s 4.5% (INR172b) a quarter ago. NIM improved 40bp YoY as the base quarter was impacted by RBI AQRrelated significant NPA recognition. Loan growth of 9%/2% QoQ/YoY was led by healthy growth in retail (8%/14% QoQ/YoY). Within retail, housing and education loans showed strongest QoQ/YoY growth of 7%/18% and 8%/15%, respectively. Within industry book, chemicals book registered 54%/34% QoQ/YoY growth. Valuation and view: Significant stress is being recognized over last several quarters, and now resolution in key sectors like steel, power, construction and roads remains a key for upgrades and recoveries. The bank has a coverage ratio of 40% (calc.), and in case of resolution/haircut, we do not expect significant hit to net worth. We maintain Buy with a SOTP-based target price of INR184. Quarterly Performance (INR Million) Y/E March FY16 FY17E FY16 FY17 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Interest Income 120, , , , , , , , , ,760 Interest Expense 79,322 80,231 81,010 80,563 78,759 79,505 82,534 82, , ,828 Net Interest Income 41,025 43,220 41,196 27,677 36,990 38,799 37,308 36, , ,932 % Change (YoY) Other Income 13,974 13,569 16,706 24,522 23,551 23,879 25,135 31,028 68,770 89,514 Net Income 54,998 56,789 57,902 52,199 60,541 62,678 62,443 67, , ,445 Operating Expenses 23,677 27,404 28,724 19,920 27,794 29,557 30,897 5,545 99,725 93,794 Operating Profit 31,321 29,385 29,179 32,279 32,746 33,120 31,546 62, , ,652 % Change (YoY) Other Provisions 18,114 18,821 37, ,852 27,384 25,338 29,359 57, , ,536 Profit before Tax 13,207 10,564-8,577-72,574 5,362 7,783 2,187 4,783-57,379 20,115 Tax Provisions 6,000 4,354-9,087-18,902 2,299 2, ,164-17,635 6,867 Net Profit 7,207 6, ,671 3,064 5,494 2,072 2,619-39,744 13,248 % Change (YoY) NM NM NM NM Operating Parameters NIM (Rep, %) NIM (Cal, %) Deposit Growth (%) Loan Growth (%) CD Ratio (%) Dom. CASA Ratio (%) Tax Rate (%) Asset Quality OSRL (INR B) OSRL (%) Gross NPA (INR B) Gross NPA (%) E: MOSL Estimates Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); Subham Banka (Subham.Banka@MotilalOswal.com); Anirvan Sarkar (Anirvan.Sarkar@MotilalOswal.com) Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on Bloomberg, Thomson Reuters, Factset and S&P Capital.

2 Exhibit 1: Quarterly Performance: Actual v/s estimates (INR m) Y/E MARCH 4QFY17A 4QFY17E Var. (%) Comments Interest Income ,17,285 1 Interest Expense ,418 6 Net Interest Income 36,835 39,867-8 % Change (Y-o-Y) NII missed estimates by 8% as NIM declined 13bps QoQ Other Income 31,028 24, Fee income grew driven by high processing fees Net Income 67,863 64,841 5 Operating Expenses 5,545 32, One off employee expense related provisions write-back (INR20.7b) Operating Profit 62,318 32, % Change (Y-o-Y) 93 2 Other Provisions 57,535 31, Credit cost higher than expected due to higher slippages Profit before Tax 4,783 1, Tax Provisions 2,164 1, Effective tax rate lower than expected Net Profit 2, One-off expense credit partially offset by elevated credit % Change (Y-o-Y) NM NM costs, drives 330% beat on PAT Management expects slippages to inch lower in FY18, whereas, recoveries and up-gradations are expected to come in strong, implying improvement in GNPA/NNPA While change in asset mix has led to YoY NIM decline, we expect NIMs to improve with reduced interest reversals Asset quality stable; Slippages soar driven by restructured book Absolute GNPA remained stable QoQ. In percentage terms GNPA and NNPA were at 12.5% (-120bp QoQ) and 7.81% (-128bps QoQ). Calculated PCR too was largely stable at 40.9% (+380bp QoQ). PCR including technical write offs improved to 58.6% v/s 55.1% in 3QFY17. Slippages came in at INR69b (annualized net slippage ratio of 6.7%), however, cash recoveries/ upgrades/write-offs at INR20.84b/INR22.63b/INR15b helped improved GNPA to 12.5%. Elevated NPA provisions of INR49.1b (annualized credit cost of 4.8%) helped push up PCR (incl. TWO) to 58.57%. OSRL decreased 31% QoQ to INR119.3b primarily due to slippages amounting to INR30b. Iron and Steel, and infra (incl. power) sector contribute 11% and 39% of the overall restructured loans. Any positive developments into these sectors will be positive for the bank. Other stress loans outstanding SDR, S4A and 5:25 together stand at INR180b of which INR60b is classified as NPA/restructured, SMA2 book decreased 50% QoQ to INR95b. Within the SMA2 book, loans of more than INR50m constituted INR89b. Total stressed book, including NNPA, SDR, S4A and 5:25 stood at 11% of net advances and including SMA2 book (INR50m+ accounts) stood at 13% Loan growth driven by retail, both global and domestic margins decline YoY The bank recorded 9%/2% QOQ/YoY growth in advances driven by 8%/14% QoQ/YoY growth in retail loans. Infra continues to command 16.3% of gross advances and 39% of restructured advances FY17 NIM, both domestic and global, declined 26bps and 22bps to 2.69% and 2.95% respectively. Yield on funds and cost of funds declined 54bps and 33bps to 6.74% and 7.28% respectively Yield on loans declined 81bps YoY to 8.29% due to general fall in interest rates, shift to MCLR and a bigger impact of interest reversals for the full year 19 May

3 Average daily CASA ratio increased 94bp to 41.7% led by 26.5% YoY increase in CASA deposits Other highlights Operating expenses declined 82%/72% QoQ/YoY driven by 126%/154% decline in employee expenses due to INR20.3b of one time employee expense related provisions write-back of INR20b+. CASA deposits grew 26.5% YoY (-1% QoQ) led by strong growth in both CA and SA deposits (+26.8%/+26.4% YoY). Domestic CASA ratio stood at 46% (v/s 47% in 3QFY17). Average CASA ratio improved to 41.7% for 4QFY17 v/s 40.8%/37.6% in 3QFY17/4QFY16 (+94bp/+114bp QoQ/YoY). Retail advances grew 8%/14% YoY led by healthy growth in housing (+18% YoY) and education loans (+15% YoY). 4QFY17 Analyst meet takeaways P&L related Pushing ARM (Agri/Retail/MSME) in rural/semi-urban areas to protect NIMs as the customer base is service sensitive and not rate sensitive. Guidance for FY18 CI ratio at 42% - 47%. B/S related Aiming overall loan book growth of 12% (20% retail growth) in FY18, targeting NIM of 2.3% - 2.5%. Asset quality related 4QFY17 GNPA movement: slippages INR68.96b (includes debit to existing accounts), cash recoveries INR20.84b, upgrades INR22.63b, write-offs INR 15.0b, sale to ARC of INR28.9b (FY17) Slippages of INR68.96b included INR30b from restructured book. In FY17 total restructured book decreased by INR80b of which INR50b slipped into NPA and INR 30b was upgraded. Top 50 NPA accounts INR300b, provisions on them is more than the overall PCR of 58.57% SDR INR110b (including NPAs). Total SDR/S4A/5:25 stood at INR180b, of which INR60b overlaps with NPA/restructured etc, leaving INR120b of stressed assets from SDR/S4A/5:25 outside NPA. SR book stood at INR18.3b. SMA2 book stood at INR95b, (of which INR89b are >INR50m accounts). The SMA2 book has negligible overlap with other parts of the stressed book During the quarter a total of INR11bn was sold to ARCs, whose net book value was INR4b and it was sold to ARCs at INR7.22b, meaning there was a gain on sale to ARC of INR3.22b Slippages will come down in FY18. FY18 credit costs should be limited to 2% Steel sector stressed accounts will mostly be resolved through S4A Divergence INR2b in FY16 19 May

4 Maintain Buy with the SOTP of INR185 (0.7x December 2018 BV and INR37/share (post holdco discount of 20%) for other ventures. Valuation and view PNB remains highly levered to resolution of policy bottlenecks and improvement in economic growth. Significant stress has been recognized over the last six quarters (GNPA% at 12.5% vs. 6.6% as of FY15) and OSRL has also come off sharply to 2.8% vs. 4.9% a year ago. Concentration of Infra (incl. power) and Iron and Steel very high in stress loans (50%+) and any upgrade in these segments can lead to significant upgrade in earnings. Bank has built up excess liquidity in the balance sheet to take advantage of fall in interest rates. CD ratio has moderated to ~67% from 75% in 4QFY16. With asset reallocation and healthy CASA growth we expect improvement in margins in the ensuing quarters. While CET1 has declined to 7.9% (-44bp QoQ), capital position is still comfortable considering focus on conserving capital and growth in low RWA segment. Pick up in loan growth will help in generating operating leverage and increase in the share of fees to overall income. We have cut earnings by 18%/12% for FY18/FY19 to factor in higher credit costs. While the near term RoA/RoE are expected to be moderate (FY18E/FY19E RoA at 0.23%/0.37% and RoE at 5.6%/7.5%), earnings have significant sensitivity to asset quality. Resolution of issues in Steel, Textiles and Infra segment can lead to significant earnings upgrade. In our view, ROAs and ROEs have bottomed out in FY17 and expect gradual improvement from hereon. Investments into PNB housing, MET life, ICRA, UTIMF etc is adding significant value to the bank. We value these investments at INR112b (INR53/share) and add INR42/share (post 20% Holdco discount) for FY18/19 in SOTP. We value the core business at 0.7x Mar 2019E BV (based on RI). Key assumptions for RI model are a) Cost of equity 14% b) Terminal growth of 5% and c) average CAGR over FY21-31 of ~12%. Maintain Buy. Exhibit 2: SOTP valuation (FY19 based) Company Entity Value Value for PNB Value Per Share Stake (INR B) (INR B) (INR) Rationale PNB Housing Based on CMP Metlife UTI MF % of the AUM Principal PNB % of AUM ICRA Based on CMP Value of ventures Less: 20% Holdco dis Value of investments (A) Banking Business (B) RI model; 0.7x Mar 19 BV Total (A+B) Market Cap Upside May

5 Exhibit 3: We cut estimates by 18% for FY18 and 12% for FY19 led by higher provisions INR B Old Est. Rev. Est. Chg. (%) FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 Net Interest Income Other Income Total Income Operating Expenses Operating Profit Provisions PBT Tax PAT Loans 4,020 4,503 5,133 4,195 4,698 5, Deposits 6,084 6,844 7,665 6,217 6,839 7, Margins (%) Credit Cost (%) RoA (%) RoE (%) EPS BV ABV Exhibit 4: One year forward P/BV PB (x) Peak(x) Avg(x) Min(x) Exhibit 5: One year forward P/E 26 PE (x) Peak(x) Avg(x) Min(x) May-07 Aug-08 Nov-09 Feb-11 May-12 Aug-13 Nov-14 Feb-16 May-17 May-07 Aug-08 Nov-09 Feb-11 May-12 Aug-13 Nov-14 Feb-16 May May

6 Exhibit 6: DuPont Analysis Highly levered to economic conditions expect RoAs to remain subdued but rise gradually FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018E FY2019E FY2020E Net Interest Income Fee income Fee to core income Core Operating Income Operating Expenses Cost to Core Income Ratio Employees Emp cost to Opex (%) Others Core operating Profits Non Interest income Trading and others Operating Profits Provisions NPA Othes PBT Tax Tax Rate RoA Leverage (x) RoE Exhibit 7: DuPont Analysis Return ratios remain subdued (%) Y/E MARCH 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 Net Interest Income Fee income Core Income Operating Expenses Employee cost Others Core operating Profits Trading and others Operating Profits Provisions NPAs Others PBT Tax Tax Rate (%) RoA Leverage (x) RoE NM May

7 Story in charts Exhibit 8: Loan growth stayed subdued YoY Loans (INR b) YoY Gr. (%) Exhibit 9: Deposit growth aided by strong CASA inflows, C-D ratio decreases YoY to 67% Deposits (INR b) YoY Growth (%) 3,809 3, ,088 3,051 3,139 3,261 3,493 3,475 3,571 3,625 3,805 3,929 4,123 3,916 3,937 3,857 4, FY13 1QFY14 1HFY14 9MFY14 FY14 1QFY15 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY17 1HFY17 9MFY17 FY ,916 3,968 4,057 4,206 4,514 4,449 4,735 4,841 5,014 5,177 5,399 5,485 5,531 5,540 5,749 6,122 6,217 FY13 1QFY14 1HFY14 9MFY14 FY14 1QFY15 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY17 1HFY17 9MFY17 FY17 Exhibit 10: Global NIMs declined 10 bp QoQ (-42bp YoY) QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 Exhibit 12: Slippages remain at elevated levels Net Slippages (INR b) Net Slipapge Ratio (%) Exhibit 11: GNPA/PCR improved in % terms QoQ/YoY; GNPA (%) NNPA (%) PCR (cal %) FY13 1QFY14 1HFY14 9MFY14 FY14 1QFY15 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY17 1HFY17 9MFY17 FY17 Exhibit 13: Credit costs increased 140bp QoQ to 4.9% QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY May

8 Exhibit 14: Quarterly Snapshot FY15 FY16 FY17 Variation (%) INR m 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q QoQ YoY Profit and Loss Net Interest Income 43,797 41,512 42,331 37,916 41,025 43,220 41,196 27,677 36,990 38,799 37,308 36, Other Income 12,364 15,584 12,908 18,051 13,974 13,569 16,706 24,522 23,551 23,879 25,135 31, Forex Income 970 1,280 1, ,450 1,090 1,260 1,650 1,450 1, Recoveries 910 4,830 1,090 3,350 2,170 2,360 5,190 13,260 7,270 8,000 9,370 9, Core Fees 8,294 7,194 7,188 7,491 8,494 7,139 6,986 8,122 9,011 7,349 9,095 9, Total Income 56,161 57,096 55,239 55,967 54,998 56,789 57,902 52,199 60,541 62,678 62,443 67, Operating Expenses 24,908 28,335 27,732 23,940 23,677 27,404 28,724 19,920 27,794 29,557 30,897 5, Employee 17,674 20,341 20,286 15,069 15,496 18,776 19,912 10,076 18,998 19,672 21,021-5, Others 7,235 7,995 7,446 8,872 8,181 8,628 8,812 9,845 8,797 9,886 9,876 11, Operating Profits 31,253 28,760 27,507 32,027 31,321 29,385 29,179 32,279 32,746 33,120 31,546 62, Provisions 9,276 17,679 14,678 38,342 18,114 18,821 37,755 1,04,852 27,384 25,338 29,359 57, NPA provisions 13,660 16,380 17,230 32,810 12,910 20,310 37,670 1,13,800 36,200 22,180 33,630 49, Provisions on Invst. -3, ,450 2,860 3, , ,200 3,680 1,300 2, Others ,559 1,898 2,672 1, ,145-8,148-6, ,571 6, PBT 21,977 11,081 12,830-6,315 13,207 10,564-8,577-72,574 5,362 7,783 2,187 4, Taxes 7,926 5,328 5,084-9,381 6,000 4,354-9,087-18,902 2,299 2, ,164 1, PAT 14,051 5,753 7,746 3,066 7,207 6, ,671 3,064 5,494 2,072 2, Ratios (%) Fees to Total Income Cost to Core Income Tax Rate CASA (Cal) Loan/Deposit Margins Margins - Cumulative (%) Yield on loans Yield On Investments Yield on Funds Cost of Deposits Cost of Funds Spreads Margins Franchise Branches 6,340 6,351 6,406 6,559 6,594 6,635 6,692 6,760 6,809 6,845 6,889 6,937 ATM 7,717 7,954 8,209 8,348 8,437 8,622 8,884 9,200 9,669 9,841 9,997 10, May

9 Exhibit 15: Quarterly Snapshot continued FY15 FY16 FY17 Variation (%) INR b 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q QoQ YoY Balance Sheet Loans 3,475 3,571 3,625 3,805 3,809 3,810 3,929 4,123 3,916 3,937 3,857 4, Investments 1,383 1,446 1,409 1,499 1,551 1,677 1,651 1,578 1,492 1,715 2,218 1, Assets 5,468 5,663 5,749 6,033 6,178 6,337 6,486 6,674 6,490 6,701 7,140 7, Deposits 4,449 4,735 4,841 5,014 5,177 5,399 5,485 5,531 5,540 5,749 6,122 6, Deposits Break Up Core Deposits 4,037 3,922 4,043 4, % of total Deposits Other Deposits ,177 5,399 5,485 5,531 5,540 5,749 6,122 6, % of total Deposits Deposits Break Up CASA Deposits 1,636 1,716 1,731 1,838 1,815 1,945 1,979 2,056 2,035 2,162 2,628 2, % of total Deposits Savings 1,366 1,421 1,435 1,502 1,496 1,577 1,615 1,694 1,711 1,801 2,220 2, % of total Deposits Current % of total Deposits Term Deposits 2,813 3,019 3,110 3,176 3,362 3,454 3,506 3,475 3,504 3,587 3,494 3, % of total Deposits Loan Break Up Agriculture SME Loans Retail Loans Other loans 2,150 2,177 2,114 2,199 2,261 2,245 2,287 2,361 2,700 2,688 1,840 2, Investment book HTM ,070 1,021 1,036 1,041 1,004 1,012 1,113 1,155 1, AFS and HFT , AFS (%) ,717-3,484 SLR (%) ,444 M. duration (Yrs) - Portfolio AFS Asset Quality Movement of NPA - Quarterly Opening Additions Deductions Cash Recovery Upgradation Write offs Closing Net Slippages Net Slippage Ratio (%) ,174 Credit cost (%) May

10 Financials and Valuations Income Statement (INR Million) Y/E March E 2018E 2019E 2020E Interest Income 3,64,761 4,18,858 4,32,233 4,63,154 4,74,244 4,72,760 5,09,729 5,59,777 6,29,747 Interest Expense 2,30,617 2,70,368 2,70,773 2,97,598 3,21,126 3,22,828 3,38,341 3,70,862 4,14,883 Net Interest Income 1,34,144 1,48,490 1,61,460 1,65,556 1,53,118 1,49,932 1,71,388 1,88,915 2,14,864 Change (%) Non Interest Income 42,026 42,234 45,767 58,907 68,770 89,514 97,018 1,06,216 1,16,766 Net Income 1,76,170 1,90,724 2,07,227 2,24,463 2,21,888 2,39,445 2,68,406 2,95,131 3,31,629 Change (%) Operating Expenses 70,028 81,651 93,382 1,04,915 99,725 93,794 1,34,391 1,50,280 1,68,289 Pre Provision Profits 1,06,143 1,09,074 1,13,845 1,19,548 1,22,163 1,45,652 1,34,015 1,44,850 1,63,341 Change (%) Provisions (excl tax) 35,772 43,856 66,939 79,975 1,79,542 1,25,536 1,00,946 98,121 1,11,158 PBT 70,370 65,218 46,905 39,573-57,379 20,115 33,069 46,730 52,183 Tax 21,528 17,741 13,479 8,957-17,635 6,867 11,244 15,888 17,742 Tax Rate (%) PAT 48,842 47,477 33,426 30,616-39,744 13,248 21,826 30,842 34,441 Change (%) Equity Dividend (Incl tax) 8,672 11,166 4,236 7, ,274 4,626 5,166 Core PPP* 97,584 99,995 1,03,201 99,150 91,933 1,00,197 87,115 95,660 1,11,481 Change (%) *Core PPP is (NII+Fee income-opex) Balance Sheet (INR Million) Y/E March E 2018E 2019E 2020E Share Capital 3,392 3,535 3,621 3,709 3,927 4,256 4,256 4,256 4,256 Equity Share Capital 3,392 3,535 3,621 3,709 3,927 4,256 4,256 4,256 4,256 Reserves & Surplus 2,74,762 3,23,234 3,55,332 3,87,086 3,79,174 4,14,214 4,31,766 4,56,981 4,85,256 Net Worth 2,78,154 3,26,769 3,58,953 3,90,795 3,83,101 4,18,470 4,36,022 4,61,237 4,89,512 Deposits 37,95,885 39,15,601 45,13,967 50,13,786 55,30,511 62,17,040 68,38,744 79,32,943 91,22,885 Change (%) of which CASA Dep 13,41,293 15,33,443 17,28,721 18,37,805 20,55,830 26,00,160 29,90,184 34,38,712 39,54,518 Change (%) Borrowings 3,72,643 3,96,209 4,80,344 4,56,705 5,97,552 4,07,633 3,70,543 3,33,693 3,34,693 Other Liabilities & Prov. 1,35,242 1,50,898 1,50,934 1,72,049 1,62,739 1,60,162 1,83,630 2,10,935 2,42,308 Total Liabilities 45,81,923 47,89,477 55,04,199 60,33,336 66,73,905 72,03,306 78,28,940 89,38,808 1,01,89,397 Current Assets 2,88,280 2,71,354 4,52,184 5,59,342 7,36,231 8,83,317 6,99,873 8,02,119 9,02,539 Investments 12,27,030 12,98,962 14,37,855 15,12,823 15,78,459 18,67,254 21,47,343 24,69,444 28,39,861 Change (%) Loans 29,37,748 30,87,959 34,92,691 38,05,344 41,23,258 41,94,932 46,98,323 53,56,089 61,05,941 Change (%) Fixed Assets 31,689 33,577 34,197 35,515 52,227 62,733 68,823 75,120 81,418 Other Assets 97,177 97,626 87,271 1,20,312 1,83,729 1,95,071 2,14,578 2,36,035 2,59,639 Total Assets 45,81,923 47,89,477 55,04,199 60,33,336 66,73,905 72,03,306 78,28,940 89,38,808 1,01,89, May

11 Financials and Valuations Asset Quality (%) GNPA (INR m) 87, , , , , , , , ,155 NNPA (INR m) 44,542 72,365 99, , , , , , ,892 GNPA Ratio NNPA Ratio PCR (Excl Tech. write off) PCR (Incl Tech. Write off) E: MOSL Estimates Ratios Y/E March E 2019E 2020E Spreads Analysis (%) Avg. Yield-Earning Assets Avg. Yield on loans Avg. Yield on Investments Avg. Cost-Int. Bear. Liab Avg. Cost of Deposits Interest Spread Net Interest Margin Profitability Ratios (%) RoE RoA Int. Expense/Int.Income Fee Income/Net Income Non Int. Inc./Net Income Efficiency Ratios (%) Cost/Income* Empl. Cost/Op. Exps Busi. per Empl. (INR m) NP per Empl. (INR lac) * ex treasury Asset-Liability Profile (%) Loans/Deposit Ratio CASA Ratio Investment/Deposit Ratio G-Sec/Investment Ratio CAR Tier Valuation Book Value (INR) Change (%) Price-BV (x) Adjusted BV (INR) Price-ABV (x) EPS (INR) Change (%) NM NM Price-Earnings (x) Dividend Per Share (INR) Dividend Yield (%) E: MOSL Estimates 19 May

12 Corporate profile Company description Punjab National Bank (PNB) was incorporated in 1894 in Lahore. It is one of India s largest nationalized public sector banks in terms of business and number of branches. As of December 2015, it had loan book size of INR3.9t and deposits of INR5.5t. It has a wide distribution network having pan-india presence with a total of 6,692 branches and 8,884 ATMs. Government holds ~62% stake in the bank. Exhibit 1: Sensex rebased Source: MOSL/Bloomberg Exhibit 2: Shareholding pattern (%) Mar-17 Dec-16 Mar-16 Promoter DII FII Others Note: FII Includes depository receipts Source: Capitaline Exhibit 3: Top holders Holder Name % Holding LIC of India 12.5 HDFC Trustee Co Ltd 3.1 Lazard Asset Management LLC 2.8 Source: Capitaline Exhibit 4: Top management Name Usha Ananthasubramanian K Veera Brahmaji Rao R S Sangapure Sanjiv Sharan Designation Managing Director & CEO Executive Director Executive Director Executive Director Exhibit 5: Directors Name Hiroo Mirchandani Rajiendra Mohan singh Mahesh Baboo Gupta Madnesh Kumar Mishra Name Sudhir Nayar G P Khadelwal Anil Kumar Khachi Rabi N Mishra Balbir Singh Company Secretary Source: Capitaline *Independent Exhibit 6: Auditors Name Chhajed & Doshi Hem Sandeep & Co R Devendra Kumar & Associates Shah Gupta & Co SPMG & Co Type Statutory Statutory Statutory Statutory Statutory Source: Capitaline Exhibit 7: MOSL forecast v/s consensus EPS MOSL Consensus (INR) forecast forecast Variation (%) FY FY Source: Bloomberg 19 May

13 N O T E S 19 May

14 Disclosures Punjab National Bank This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company (ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your general information and should not be reproduced or redistributed to any other person in any form. 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