Punjab National Bank

Transcription

1 Steady on all fronts February 07, 2018 R Sreesankar rsreesankar@plindia.com / Pritesh Bumb priteshbumb@plindia.com / Vidhi Shah vidhishah@plindia.com / Rating Accumulate Price Rs160 Target Price Rs172 Implied Upside 7.5% Sensex 34,196 Nifty 10,498 (Prices as on February 07, 2018) Trading data Market Cap. (Rs bn) Shares o/s (m) 2, M Avg. Daily value (Rs m) Major shareholders Promoters 57.04% Foreign 12.56% Domestic Inst % Public & Other 5.11% Stock Performance (%) 1M 6M 12M Absolute (8.9) Relative (9.0) 0.5 (13.0) How we differ from Consensus EPS (Rs) PL Cons. % Diff Price Performance (RIC: PNBK.BO, BB: PNB IN) (Rs) Feb 17 Apr 17 Jun 17 Source: Bloomberg Aug 17 Oct 17 Dec 17 Feb 18 PNB s operational performance remained weak with slower NII despite strong loan growth of 17% YoY implying pressure on margins. Earnings were supported by onetime stake sale in PNB Housing of Rs15.0bn and tax write back, while the bank continues to suffer from higher provisioning and incrementally by high investment depreciation. Overall asset quality was much stable (improved on percentage basis) helped by better recoveries and write offs but slippages continue to remain elevated sequentially too. Stressed assets continue to be coming off gradually but balance provisions on NCLT based referrals remain high (Rs100.0bn) which will keep earnings under pressure. We maintain Accumulate with revised TP of Rs172 (from Rs186) based on 1.4x Sep 19 ABV. Muted core performance: NII growth was slow at 7% YoY and flattish sequentially despite strong loan growth. Fee income was also muted leading to core PPOP growth of only 2.6% YoY, mainly helped by opex de growth. PPOP was supported by one off gains in stake sale of PNB Housing of Rs15.0bn while treasury remained muted. Margins were under pressure down by 10bps QoQ (calculated) as pressure on yields had a higher bearing. Asset quality stable: Asset quality trends were stable on absolute basis but improved on percentage basis on favourable denominator of loans (increase of 17% yoy). Overall asset quality was helped by better recovery and slightly higher write offs but slippages increased sequentially to Rs46.0bn (fresh Rs39.0bn v/s Rs35.2bn in Q2FY18) and mainly were from the existing pool of stressed assets. Going ahead, bank remains underprovided on the NCLT referred a/c with Rs10.0bn of additional provision in Q4FY18 and ageing of NPAs along with fresh slippages which will keep credit cost at much higher levels. Loan growth very strong: Post capital infusion of Rs50.0bn through preferential basis & stake sale in PNB housing helping Tier I improve by 30bps QoQ, helped strong loan growth of 17% YoY and 1 QoQ mainly from corporate and retail and looks slightly aggressive in our view and result in margin pressure as yields remain much more competitive. Key positive is CASA mix remained stable at 45% (average basis 43%) and one of the best amongst PSBs will help manage cost of funds in much better manner with liquidity getting tighter. Key financials ( Y/e March) E 2020E Net interest income 149, , , ,399 Growth (%) (2.1) Operating profit 145, , , ,169 PAT 13,248 14,018 36,270 59,143 EPS (Rs) Growth (%) (131.1) (4.9) Net DPS (Rs) Profitability & Valuation E 2020E NIM (%) RoAE (%) RoAA (%) P / BV (x) P / ABV (x) PE (x) Net dividend yield (%) Source: Company Data; PL Research Q3FY18 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 Exhibit 1: Core performance continues to be weak; asset quality stable P&L (Rs m) Q3FY18 Q3FY17 YoY gr. (%) Q2FY18 QoQ gr. (%) Interest Income 121, , ,993 (1.0) Interest Expense 81,868 82,534 (0.8) 82,841 (1.2) Net Interest Income (NII) 39,887 37, ,152 (0.7) Treasury income 15,370 5, , Other income 30,820 25, , Total income 70,707 62, , Operating expenses 28,255 30,897 (8.5) 26, Staff expenses 17,416 21,021 (17.2) 15, Other expenses 10,840 9, , Operating profit 42,452 31, , Core operating profit 27,082 26, , Total provisions 44,667 29, , Profit before tax (2,215) 2,187 NA 8,383 NA Tax (4,516) 116 NA 2,777 NA Profit after tax 2,301 2, ,606 NA Balance sheet (Rs m) Deposits 6,479,977 6,121, ,362, Advances 4,521,102 3,857, ,102, Profitability ratios NIM (5) 2.4 (7) RoaA (18) RoaE (26) 5.6 (372) Asset Quality Gross NPA (Rs m) 575, , ,301 (0.2) Net NPA (Rs m) 340, ,935 (2.6) 345,702 (1.4) O/S Std. restr. assets (Rs m) 95, ,190 (44.3) 104,560 (8.2) Gross NPL ratio (159) 13.3 (120) Net NPL ratio (154) 8.4 (89) Coverage ratio Std. rest. Assets/Loans (234) 2.5 (43) Business & Other Ratios Low cost deposit mix (159) Cost income ratio (952) 44.6 (466) Non int. inc / total income ,140 Credit deposit ratio CAR (4) Tier I February 07,

3 Exhibit 2: Strong loan book growth mainly in domestic corporate & retail 2 18% 16% 14% 12% 1 8% 6% 4% 2% 2% 4% Advances growth YoY(%) Exhibit 3: Fee growth remained muted but better Fx fees Core fee growth (%) Exhibit 4: CASA ratio remained stable Exhibit 5: Margins continue to see pressure, lowest in many quarters 48% 46% 44% 42% 4 38% 36% CASA (%) % 3.6% 3.4% 3.2% % 2.6% 2.4% 2.2% 2. NIM (%) Exhibit 6: Credit cost remained elevated including investment depreciation Exhibit 7: but asset quality improved on favourable denominator but on absolute also remained stable 12% 1 8% 6% 4% 2% Credit Cost 16% 14% 12% 1 8% 6% 4% 2% Gross NPA (%) Net NPA (%) February 07,

4 Exhibit 8: Stressed assets coming down gradually PNB GNPAs 222, , , , , , , , , , , , ,194 Fresh Addition in Qtr 43,500 53,650 28,020 23, , ,050 75,330 50,890 48,000 68,960 60,180 35,170 39,000 Annualized Slippages % 5.7% 5.9% 2.9% 2.5% 13.1% 23.8% 7.3% 5.2% 4.9% 7.2% 5.7% 3.5% 3.8% O/s std restructured 343, , , , , , , , , , , ,560 95,940 O/s Restructred as % of adv % 11.1% 11.5% % 4.9% 4.8% 4.6% 2.8% 2.8% 2.5% 2.2% 5/25 refinancing stock 26,000 32,330 68,000 76,000 81,710 90, ,510 NA 108, ,530 SDR assets stock 60,000 54,580 58,790 91, , ,000 69,710 69,710 S4A assets stock 33,030 25,000 54,680 54,680 Total 237, , ,000 Overlap with Restructured 45,000 Overlap with NPA 46,000 Exhibit 9: RoAE decomposition tree RoAE decomposition FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E Interest income Interest expenses Net interest income Treasury income Other Inc. from operations Total income Employee expenses Other operating expenses Operating profit Tax (0.28) Loan loss provisions RoAA (0.63) RoE (10.87) Exhibit 10: Change in earnings estimates We have slightly tweak our estimates on business growth, other income, credit cost and slippages (Rs mn) Old Revised % Change FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E Net interest income 162, , , , , ,399 (1.1) (4.9) (1.7) Operating profit 137, , , , , , (4.2) (3.2) Net profit 25,032 46,009 67,296 14,018 36,271 59,144 (44.0) (21.2) (12.1) EPS (Rs) (47.7) (30.8) (22.9) ABVPS (Rs) (0.6) (2.0) Price target (Rs) (7.7) Recommendation ACCUMULATE ACCUMULATE February 07,

5 Exhibit 11: We reduce our PT to Rs172 (from Rs186) based on 1.4x Sep 19 ABV PT calculation and upside Fair price EVA 173 Fair price P/ABV 171 Average of the two 172 Target P/ABV 1.4 Target P/E 13.1 Current price, Rs 157 Upside (%) 9% Dividend yield (%) 2% Total return (%) 11% Exhibit 12: PNB one year forward P/ABV trends P/ABV 3 yr avg. avg. + 1 SD avg. 1 SD Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13 Feb 14 May 14 Aug 14 Nov 14 Feb 15 May 15 Aug 15 Nov 15 Feb 16 May 16 Aug 16 Nov 16 Feb 17 May 17 Aug 17 Nov 17 Feb 18 February 07,

6 Income Statement (Rs m) Int. Earned from Adv. 329, , , ,120 Int. Earned from Invt. 125, , , ,250 Others 17,400 17,849 18,568 19,785 Total Interest Income 472, , , ,154 Interest expense 322, , , ,755 NII 149, , , ,399 Growth (%) (2.1) Treasury Income 26,543 28,000 12,000 10,000 NTNII 62,970 65,989 86,689 93,623 Non Interest Income 89,514 93,989 98, ,623 Total Income 562, , , ,778 Growth (%) Operating Expense 93, , , ,853 Operating Profit 145, , , ,169 Growth (%) 19.2 (2.8) NPA Provisions 127, ,641 88,425 71,223 Investment Provisions 4,867 15,573 3,893 1,947 Total Provisions 125, ,009 95,879 77,193 PBT 20,115 15,576 53,340 86,976 Tax Provisions 6,867 1,558 17,070 27,833 Effective Tax Rate (%) PAT 13,248 14,018 36,270 59,143 Growth (%) (133.3) Balance Sheet (Rs m) Par Value No. of equity shares 2,128 2,426 2,426 2,426 Equity 4,256 4,851 4,851 4,851 Networth 418, , , ,213 Adj. Networth 91, , , ,558 Deposits 6,217,040 6,714,403 7,385,844 8,272,145 Growth (%) Low Cost deposits 2,600,159 2,769,691 3,028,196 3,391,579 % of total deposits Total Liabilities 7,203,305 7,878,602 8,634,373 9,629,629 Net Advances 4,194,931 4,656,374 5,168,575 5,788,804 Growth (%) Investments 1,867,254 2,125,707 2,297,953 2,538,676 Total Assets 7,203,305 7,878,602 8,634,373 9,629,629. Quarterly Financials (Rs m) Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18 Interest Income 118, , , ,755 Interest Expense 82,030 82,812 82,841 81,868 Net Interest Income 36,835 38,551 40,152 39,887 Non Interest Income 31,028 23,318 19,060 30,820 CEB 9,660 10,720 8,510 8,620 Treasury 9,210 8,020 7,010 15,370 Net Total Income 67,863 61,869 59,212 70,707 Operating Expenses 5,545 29,696 26,421 28,255 Employee Expenses (5,484) 19,373 15,900 17,416 Other Expenses 11,029 10,323 10,521 10,840 Operating Profit 62,318 32,173 32,791 42,452 Core Operating Profit 53,108 24,153 25,781 27,082 Provisions 57,535 26,087 24,408 44,667 Loan loss provisions 49,104 25,597 26,938 29,964 Investment Depreciation 2,080 2, ,750 Profit before tax 4,783 6,086 8,383 (2,215) Tax 2,164 2,652 2,777 (4,516) PAT before EO 2,619 3,434 5,606 2,301 Extraordinary item PAT 2,619 3,434 5,606 2,301 Key Ratios CMP (Rs) Equity Shrs. Os. (m) 2,128 2,426 2,426 2,426 Market Cap (Rs m) 341, , , ,186 M/Cap to AUM (%) EPS (Rs) Book Value (Rs) Adj. BV (10) (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) 1,397 1,426 1,471 1,540 Profit per Branch (Rs m) Asset Quality Gross NPAs (Rs m) 553, , , ,122 Net NPAs (Rs m) 327, , , ,655 Gr. NPAs to Gross Adv. (%) Net NPAs to Net Adv. (%) NPA Coverage (%) February 07,

7 Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai , India Tel: (91 22) Fax: (91 22) Rating Distribution of Research Coverage PL s Recommendation Nomenclature % of Total Coverage % 45.7% 12.4% 0. BUY Accumulate Reduce Sell BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 1 absolute upside in 1 month Trading Sell : Over 1 absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly DISCLAIMER/DISCLOSURES ANALYST CERTIFICATION We/I, Mr. R Sreesankar (B.Sc ), Mr. Pritesh Bumb (MBA, M.com), Ms. Vidhi Shah (CA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as PL ) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document. PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities. PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company. PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report. PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report. PL or its associates might have received compensation from the subject company in the past twelve months. PL or its associates might have managed or co managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months. PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report. PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report. It is confirmed that Mr. R Sreesankar (B.Sc ), Mr. Pritesh Bumb (MBA, M.com), Ms. Vidhi Shah (CA), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest. PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. DISCLAIMER/DISCLOSURES (FOR US CLIENTS) ANALYST CERTIFICATION The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report Terms & conditions and other disclosures: This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a 6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. February 07,