Punjab National Bank

Transcription

1 Slippages remain high despite high recoveries May 22, 2017 R Sreesankar rsreesankar@plindia.com / Pritesh Bumb priteshbumb@plindia.com / Vidhi Shah vidhishah@plindia.com / Rating Accumulate Price Rs155 Target Price Rs160 Implied Upside 3.2% Sensex 30,465 Nifty 9,428 (Prices as on May 20, 2016) Trading data Market Cap. (Rs bn) Shares o/s (m) 2, M Avg. Daily value (Rs m) Major shareholders Promoters 65.03% Foreign 9.96% Domestic Inst % Public & Other 5.47% Stock Performance (%) 1M 6M 12M Absolute Relative (2.8) (12.7) 89.9 How we differ from Consensus EPS (Rs) PL Cons. % Diff Price Performance (RIC: PNBK.BO, BB: PNB IN) (Rs) May 16 Jul 16 Sep 16 Source: Bloomberg Nov 16 Jan 17 Mar 17 May 17 PNB s earnings were better but the quality was weaker than expected mainly on one off income like IT refund, investment gains in pension assets and treasury gains resulting in avoiding loss at PBT levels. PPOP was helped by strong treasury income but bank continued to make high provisions towards ageing of NPAs which improved PCR. Asset quality improved as bank continued to make strong recovery/upgrades but PCR at 44% (calculated) remains much lower amongst large PSBs especially on high base of NPAs and continued slippages will keep provisions high. This will impact earnings and keep capital requirement high, despite we building in some recovery in profitability. We retain Accumulate with TP of Rs160 (from Rs165) based on 1.3x Mar 19 ABV (rolled over from Sep 18 ABV). PPOP supported by one offs: Bank s PPOP growth was 93% YoY on back of oneoff in NII, strong treasury income and investment gains on pension assets was flowed through P&L taking write back in employee cost. Apart from good treasury gains, fee income continued to be better growing 19% YoY helping strong other income. Margins continued to be soft at 2.3% and remains at the lowest level in many quarters. High slippages in FY17 but bank has been able to showcase strong recoveries: FY17 slippages continued to be high at Rs224bn (despite Rs422bn in FY16 on AQR), but bank has been able to display strong upgrades/recoveries much stronger than corporate bank peers helping asset quality. But bank continues to see high quarterly slippages with Rs69.0bn (one third from restructured book) in Q4FY17 higher from the previous two quarters but did not affect asset quality on intra quarter recoveries/upgrades. Other impaired assets remained stable with most a/c overlapping with NPA or restructured. PCR at 44% lowest among large corporate banking peers: Though bank has been improving its NPA coverage ratio through high provisioning impacting earnings, calculated PCR at 44% (59% including technical write off) which is lowest among large corporate bank peers and bank will continue to face high provisions on ageing of NPAs impacting earnings and capital which is at 8.91% (CET I at 7.87%). We retain Accumulate with TP of Rs160 based on 1.3x Mar 19 ABV. Key financials ( Y/e March) E 2019E Net interest income 153, , , ,043 Growth (%) (7.5) (2.1) Operating profit 122, , , ,464 PAT (39,742) 13,236 27,495 50,808 EPS (Rs) (20.8) Growth (%) (224.6) (131.1) Net DPS (Rs) Profitability & Valuation E 2019E NIM (%) RoAE (%) (10.3) RoAA (%) (0.63) P / BV (x) P / ABV (x) PE (x) (7.5) Net dividend yield (%) Source: Company Data; PL Research Q4FY17 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 mainly led by one off income and recovery in loan growth Bank reported strong treasury income leading to strong other income. Opex was lower as bank utilized investment gains on pension assets to pass through P&L Provisioning continued to be high on slippages and NPA ageing Exhibit 1: PNB Q4FY17 Earnings helped by one offs; high provisioning continues P&L (Rs m) Q4FY17 Q4FY16 YoY gr. (%) Q3FY17 QoQ gr. (%) Interest Income 118, , ,842 (0.8) Interest Expense 82,030 80, ,534 (0.6) Net Interest Income (NII) 36,835 27, ,308 (1.3) Treasury income 9,210 2, , Other income 31,028 24, , Total income 67,863 52, , Operating expenses 5,545 19,920 (72.2) 30,897 (82.1) Staff expenses (5,484) 10,076 (154.4) 21,021 (126.1) Other expenses 11,029 9, , Operating profit 62,318 32, , Core operating profit 62,318 30, , Total provisions 57, ,852 (45.1) 29, Profit before tax 4,783 (72,574) NA 2, Tax 2,164 (18,902) NA 116 1,771.8 Profit after tax 2,619 (53,671) NA 2, Advances growth improved but remains much below industry levels Balance sheet (Rs m) Deposits 6,217,040 5,530, ,121, Advances 4,194,932 4,123, ,857, Margins were steady in Q4 but has been under pressure for some time Profitability ratios NIM (30) 2.3 (3) RoaA RoaE Asset quality improved on better recoveries/upgrades Bank s PCR improved by 385bps QoQ but remains low at 41% Asset Quality Gross NPA (Rs m) 553, ,183 (0.8) 556,275 (0.5) Net NPA (Rs m) 327, ,226 (7.7) 349,935 (6.5) O/S Std. restr. assets (Rs m) 119, ,440 (40.8) 172,190 (30.7) Gross NPL ratio (37) 13.7 (117) Net NPL ratio (80) 9.1 (128) Coverage ratio Std. rest. Assets/ Total (204) 4.5 (162) Business & Other Ratios Low cost deposit mix (109) Cost income ratio (2,999) 49.5 (4,131) Non int. inc / total income (126) Credit deposit ratio (708) CAR Tier I May 22,

3 Exhibit 2: Loan book saw some recovery from all segments Exhibit 3: Core fees growth remained strong 2 Advances growth YoY(%) 4 Core fee growth (%) 15% 5% 3 2 5% 2 Exhibit 4: CASA mix was steady especially post remonetisation Exhibit 5: Margins remain at lowest levels 48% 46% 44% 42% 4 38% 36% 34% 32% 3 CASA (%) % 3.6% 3.4% 3.2% % 2.6% 2.4% 2.2% 2. NIM (%) Exhibit 6: Slippages for quarter remained high but intra quarter recovery help lower overall slippages PNB GNPAs 196, , , , , , , , , , , ,705 Fresh Addition in Qtr 26,550 33,220 43,500 53,650 28,020 23, ,650 2,34,050 75,330 50,890 48,000 68,960 Annualized Slippages % % 4.8% 5.9% 2.9% 2.5% 12.7% 23.8% 7.3% 5.2% 4.9% 7.15% O/s std restructured 340, , , , , , , , , , , ,320 O/s Restructred as % of adv 10.5% 10.5% % 11.1% 11.5% % 4.9% 4.8% 4.6% 2.8% 5/25 refinancing stock 26,000 32,330 68,000 76,000 81,710 90, ,510 NA SDR assets stock 60,000 54,580 58,790 91, , ,000 S4A assets stock 33,030 25,000 May 22,

4 Exhibit 7: Credit cost remains high on ageing and as slippages remain high Exhibit 8: Asset quality improved as bank has been showcasing better recovery/upgrades 12% 8% 6% 4% 2% Credit Cost 16% 14% 12% 8% 6% 4% 2% Gross NPA (%) Net NPA (%) Exhibit 9: RoAE decomposition tree RoAE decomposition FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 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) Exhibit 10: Earnings change table We have lowered our estimates on loan growth, increased treasury income and credit cost mainly for ageing for FY17 & FY18 (Rs mn) Old Revised % Change FY18E FY19E FY18E FY19E FY18E FY19E Net interest income 151, , , ,712 (0.8) (3.8) Operating profit 129, , , , (3.4) Net profit 15,239 31,544 13,248 27,495 (13.1) (12.8) EPS (Rs) (13.1) (12.8) ABVPS (Rs) (4.5) Price target (Rs) (3.2) Recommendation ACCUMULATE ACCUMULATE May 22,

5 Exhibit 11: We raise our PT to Rs160 (from Rs165) based on 1.3x Mar 19 ABV (rolled over) PT calculation and upside Fair price EVA 159 Fair price P/ABV 160 Average of the two 160 Target P/ABV 1.3 Target P/E 6.7 Current price, Rs 155 Upside (%) 3% Dividend yield (%) 2% Total return (%) 5% Exhibit 12: PNB one year forward P/ABV trends P/ABV 3 yr avg. avg. + 1 SD avg. 1 SD May 11 Aug 11 Nov 11 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 May 22,

6 Income Statement (Rs m) Int. Earned from Adv. 344, , , ,469 Int. Earned from Invt. 120, , , ,315 Others 9,452 17,400 12,596 12,991 Total Interest Income 474, , , ,775 Interest expense 321, , , ,732 NII 153, , , ,043 Growth (%) (7.5) (2.1) Treasury Income 7,260 22,560 12,000 10,000 NTNII 61,510 66,954 76,619 85,708 Non Interest Income 68,770 89,514 88,619 95,708 Total Income 543, , , ,483 Growth (%) Operating Expense 99,725 93, , ,287 Operating Profit 122, , , ,464 Growth (%) NPA Provisions 184, , ,495 91,617 Investment Provisions 3,450 4,870 (1,218) 304 Total Provisions 179, , ,946 94,746 PBT (57,377) 20,104 40,434 74,718 Tax Provisions (17,635) 6,867 12,939 23,911 Effective Tax Rate (%) PAT (39,742) 13,236 27,495 50,808 Growth (%) (229.8) (133.3) Balance Sheet (Rs m) Par Value No. of equity shares 1,964 2,128 2,128 2,128 Equity 3,927 4,256 4,256 4,256 Networth 383, , , ,529 Adj. Networth 28,871 91, , ,591 Deposits 5,530,511 6,217,040 7,025,255 7,938,539 Growth (%) Low Cost deposits 2,055,830 2,600,160 2,894,405 3,254,801 % of total deposits Total Liabilities 6,673,905 7,203,306 8,072,054 9,075,225 Net Advances 4,123,258 4,194,932 4,404,678 4,757,052 Growth (%) Investments 1,578,459 1,867,254 2,640,761 3,167,309 Total Assets 6,673,905 7,203,306 8,072,054 9,075,225. Quarterly Financials (Rs m) Y/e March Q1FY17 Q2FY17 Q3FY17 Q4FY17 Interest Income 115, , , ,865 Interest Expense 78,759 79,505 82,534 82,030 Net Interest Income 36,990 38,799 37,308 36,835 Non Interest Income 23,551 23,879 25,135 31,028 CEB 8,960 7,350 9,100 9,660 Treasury 6,010 6,210 5,160 9,210 Net Total Income 60,541 62,678 62,443 67,863 Operating Expenses 27,794 29,557 30,897 5,545 Employee Expenses 18,998 19,672 21,021 (5,484) Other Expenses 8,797 9,886 9,876 11,029 Operating Profit 32,746 33,120 31,546 62,318 Core Operating Profit 26,736 26,910 26,386 53,108 Provisions 27,384 25,338 29,359 57,535 Loan loss provisions 36,200 22,180 33,632 49,104 Investment Depreciation (2,200) 3,680 1,300 2,080 Profit before tax 5,362 7,783 2,187 4,783 Tax 2,299 2, ,164 PAT before EO 3,064 5,494 2,072 2,619 Extraordinary item PAT 3,064 5,494 2,072 2,619 Key Ratios CMP (Rs) Equity Shrs. Os. (m) 1,964 2,128 2,128 2,128 Market Cap (Rs m) 305, , , ,683 M/Cap to AUM (%) EPS (Rs) (20.8) Book Value (Rs) Adj. BV (10) (Rs) P/E (x) (7.5) P/BV (x) P/ABV (x) DPS (Rs) Dividend Yield (%) Profitability (%) NIM RoAA (0.6) RoAE (10.3) Efficiency Cost Income Ratio (%) C D Ratio (%) Business per Emp. (Rs m) Profit per Emp. (Rs lacs) (4.6) Business per Branch (Rs m) 1,386 1,397 1,433 1,488 Profit per Branch (Rs m) (6) Asset Quality Gross NPAs (Rs m) 558, , , ,224 Net NPAs (Rs m) 354, , , ,938 Gr. NPAs to Gross Adv. (%) Net NPAs to Net Adv. (%) NPA Coverage (%) May 22,

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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 absolute upside in 1 month Trading Sell : Over 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. 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