February 1, 2012
ACCUMULATE
CMP Target Price
% chg (qoq) 2.4 5.9 (4.6) 3QFY11 3,203 2,350 1,090 % chg (yoy) 10.4 13.9 5.5
`956 `1,036
12 Months
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
For 3QFY2012, PNB registered a moderate set of results with net profit growing by 5.5% yoy to `1,150cr, which was below our estimates on account of higher provisioning expenses than estimated by us. We recommend an Accumulate rating on the stock.
Chunky slippages and restructuring lead to deterioration in asset quality: The banks business growth momentum picked up during 3QFY2012. Advances for the bank increased by 5.5% qoq (18.7% yoy). On a yoy basis, advances growth was driven by loans to MSMEs and retail which grew by 18.5% and 19.7%, respectively. Deposits growth on a qoq basis stood at 4.3% qoq (up 23.4% yoy), however CASA deposits growth was muted at 1.6% qoq (up 11.7% yoy). Saving account deposit growth was slightly better at 2.2% qoq (up 14.3% yoy). Consequently, reported CASA ratio declined by 90bp qoq and 350bp yoy to 36.2%. The banks reported NIMs slipped by 7bp to 3.9% during 3QFY2012 on back of 22bp qoq rise in the cost of deposits to 6.7%. The yield on advances was nearly flat sequentially at 12.0%. Fee income picked up sequentially, driven by higher forex income (up 15.8% qoq) and recoveries (up 35.3% qoq). On the asset-quality front, the bank surprised negatively with slippages rate jumping to 2.8% (1.6% in 2QFY2012). However, the management attributed this sharp jump in slippages to primarily an aviation account which slipped during the quarter. Consequently, the NPA levels rose sharply qoq with gross NPAs rising by 25.1% qoq and net NPA rising by 38.9% qoq. The bank restructured `1,989cr worth of accounts during 3QFY2012, of which `978cr was to a telecom account. The bank also took a hit of `150cr for NPV loss on this telecom account during the quarter. The total outstanding restructured book as of 3QFY2012 stands at `16,687cr. Outlook and valuation: The banks valuations are currently at low 1.1x FY2013 ABV compared to its five year range of 1.11.6x and median of 1.4x, due to the asset quality concerns facing the sector. Taking into account the banks relatively lower cost of deposits than peers and valuations at the lower end of its historical trading range, we currently have a positive stance on the bank. Hence, we recommend an Accumulate on the stock with a target price of `1,036.
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 58.0 17.9 18.6 5.5
3m (1.0) (5.7)
Key financials
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research
FY2010 8,478 20.6 3,905 26.4 3.2 123.9 7.7 1.9 1.4 26.6
FY2011 11,807 39.3 4,434 13.5 3.6 139.9 6.8 1.5 1.3 24.4
FY2012E 13,813 17.0 4,819 8.7 3.5 152.1 6.3 1.3 1.2 22.0
FY2013E 16,153 16.9 5,015 4.1 3.4 158.3 6.0 1.1 1.0 19.4
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
3QFY12 2QFY12 % chg (qoq) 3QFY11 % chg (yoy) 9,481 7,331 2,027 81 42 5,944 3,537 954 859 510 95 92 257 4,491 1,814 1,264 551 2,676 946 579 367 1,730 580 1,150 33.5 8,952 7,045 1,852 48 7 5,499 3,453 889 784 477 105 68 239 4,341 1,814 1,240 573 2,528 710 319 391 1,817 612 1,205 33.7 5.9 4.1 9.4 67.1 538.7 8.1 2.4 7.3 9.6 6.9 (9.5) 35.3 7.6 3.4 0.0 1.9 (3.9) 5.9 33.2 81.5 (6.2) (4.8) (5.2) (4.6) (16)bp 7,119 5,489 1,493 26 112 3,916 3,203 857 753 413 104 123 217 4,061 1,711 1,224 487 2,350 714 555 159 1,636 546 1,090 33.4 33.2 33.6 35.8 216.6 (62.6) 51.8 10.4 11.3 14.1 23.5 (8.7) (25.2) 18.3 10.6 6.1 3.3 13.1 13.9 32.5 4.3 131.0 5.8 6.2 5.5 15bp
Actual 3,537 954 4,491 1,814 2,676 946 1,730 580 1,150
Estimates 3,607 960 4,568 1,839 2,729 843 1,886 612 1,274
Var. (%) (2.0) (0.6) (1.7) (1.3) (1.9) 12.3 (8.2) (5.2) (9.7)
February 1, 2012
3QFY12
2QFY12
% chg (qoq)
3QFY11 % chg (yoy) 18.7 23.4 (293)bp 1.4 14.3 11.7 (350)bp (42)bp 27bp 154bp 138bp 786bp 93bp 122bp (25)bp (173)bp 41.9 39bp 84.2 39bp (717)bp 69bp (7)bp
5.5 221,252 4.3 288,873 80bp (1.2) 2.2 (90)bp (75)bp (52)bp 22bp 5bp 8bp 17bp 22bp (7)bp (137)bp 25.1 37bp 38.9 27bp (507)bp 114bp 24bp 76.6 22,945 89,860 39.7 11.9 7.6 5.2 10.6 8.3 4.5 4.1 42.1 4,541 2.0 1,575 0.7 77.2 2.1 0.6
102,705 100,491 125,965 124,022 36.2 11.5 7.9 6.7 12.0 7.9 9.2 5.8 3.9 40.4 6,442 2.4 2,901 1.1 70.0 2.8 0.6 37.1 12.2 8.4 6.5 11.9 7.8 9.0 5.5 4.0 41.8 5,150 2.1 2,089 0.8 75.1 1.6 0.3
1.6 112,805
February 1, 2012
Deposits growth on a qoq basis stood at 4.3% qoq (up 23.4% yoy), however CASA deposits growth was muted at 1.6% qoq (up 11.7% yoy). Saving account deposit growth was slightly better at 2.2% qoq (up 14.3% yoy). Consequently, reported CASA ratio declined by 90bp qoq and 350bp yoy to 36.2%.
2QFY12 % chg (qoq) 35,076 24,732 27,643 90,760 10,353 42,415 4,214 16,511 9.2 5.2 8.2 (2.6) 0.3 12.4 28.7 19.8
3QFY11 % chg (yoy) 33,909 21,730 25,249 76,545 9,729 41,280 4,485 10,817 13.0 19.7 18.5 15.5 6.7 15.5 15.5 20.9 15.6 82.8 18.7
39.1
38.5
37.4
36.3
6.0 5.7
9.4 8.3
0.3 3.6
2.5 5.5
5.5 4.3
2.0 -
35.3
72.0
February 1, 2012
3.88
3QFY12 2QFY12 510 95 154 92 103 954 859 477 105 133 68 107 890 785
% chg (qoq) 3QFY11 6.9 (9.5) 15.8 35.3 (3.7) 7.2 9.4 413 104 125 123 92 857 753
stands at 2.4% (2.1% in 2QFY2012), while net NPA ratio stands at 1.1% (0.8% in 2QFY2012). Provision coverage ratio (including technical write-offs) declined
by ~500bp to 70.0% (75.1% in 2QFY2011). The bank restructured `1,989cr worth of accounts during 3QFY2012, of which `978cr was to a telecom account. The bank also took a hit of `150cr for NPV loss
February 1, 2012
on this telecom account during the quarter. The total outstanding restructured book as of 3QFY2012stands at `16,687cr. According to the management, Rajasthan SEB has been restructured recently by the bank, the effect of which is expected to show in 4QFY2012. The bank is also expecting further restructuring on loans pertaining to Haryana and UP electricity boards to happen over the next two quarters.
2.1
2.7
1.9
1.6
2.8
1.8 0.7
1.9 0.7
2.0 0.7
1.8 0.9
2.0 0.9
70.0
0.5
0.5
5,793
4,987
5,161
5,264
5,315
42.1
39.9
41.1
41.8
1,500 -
36.0
February 1, 2012
40.4
4,800
5,393
38.0
Investment arguments
Strong CASA legacy, but losing market share
PNB has a structural advantage of having relatively better CASA ratio of 37.1%, which is driven by strong rural and semi-urban presence, especially in North India (total of 5,393 branches and 5,793 ATMs). This should act as a strong cushion in the current higher interest rate environment, and we have accordingly factored in a relatively lower decline (~20bp) in calculated NIM in FY2012E to 3.4% from 3.6% in FY2011. That said, the bank is losing its market share like most other public sector banks on account of slow branch expansion and competition from private banks savings market share declined by 50bp to 7.4% during FY200811.
Investment concerns
Persistent asset-quality pressures
During FY2011, slippage ratio for the bank was the highest in the last four years at 2.3%. Provisions for NPAs had also more than doubled to `2,004cr (from `994cr in FY2010) to compensate for high slippages witnessed in FY2011. Even in 1HFY2012, though the slippage rate moderated, it was relatively higher than its peers at 1.8%. Going forward, the completion of migration to the system-based NPA recognition platform is likely to reduce incremental slippages. Management expects the strong performance on the recoveries and up-gradations front seen in 1HFY2012 to continue in 2HFY2012 as well. However taking into account the aggressive restructuring carried out in 9MY2012, the banks relatively higher exposure to risky sectors and the overall weak macroeconomic environment, we remain cautious on the incremental asset quality pressures.
February 1, 2012
Earlier estimates FY2012 15.0 21.0 36.6 3.5 10.8 12.0 19.0 2.2 75.0 FY2013 16.0 17.0 36.0 3.4 5.8 15.0 15.0 2.8 75.0
Revised estimates FY2012 15.0 21.0 36.6 3.5 10.6 12.0 18.0 2.6 70.0 FY2013 16.0 17.0 36.0 3.4 5.1 15.0 15.0 2.8 72.5
FY2013 Earlier estimates 16,474 4,231 20,705 8,350 12,355 4,795 7,560 2,453 5,107 Revised Var. (%) estimates 16,153 4,199 20,352 8,328 12,024 4,601 7,423 2,408 5,015 (1.9) (0.8) (1.7) (0.3) (2.7) (4.0) (1.8) (1.8) (1.8)
Earlier estimates 13,976 4,001 17,977 7,261 10,715 3,371 7,345 2,383 4,962
Revised Var. (%) estimates 13,813 3,996 17,809 7,242 10,566 3,432 7,134 2,315 4,819 (1.2) (0.1) (0.9) (0.3) (1.4) 1.8 (2.9) (2.9) (2.9)
0.5x
0.9x
1.3x
1.7x
2.1x
February 1, 2012
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF
February 1, 2012
Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY08 5,534 0.4 1,998 15.4 7,532 4.0 3,525 6.0 4,006 2.2 710 (59.4) 3,296 52.0 1,247 37.8 2,049 33.0 FY09 7,031 27.0 2,920 46.2 9,951 32.1 4,206 19.3 5,744 43.4 981 38.1 4,763 44.5 1,673 35.1 3,091 50.9 FY10 8,478 20.6 3,610 23.6 12,088 21.5 4,762 13.2 7,326 27.5 1,422 44.9 5,905 24.0 1,999 33.9 3,905 26.4 FY11 11,807 39.3 3,613 0.1 15,420 27.6 6,364 33.6 9,056 23.6 2,492 75.3 6,564 11.2 2,130 32.5 4,434 13.5 FY12E 13,813 17.0 3,996 10.6 17,809 15.5 7,242 13.8 10,566 16.7 3,432 37.7 7,134 8.7 2,315 32.4 4,819 8.7 FY13E 16,153 16.9 4,199 5.1 20,352 14.3 8,328 15.0 12,024 13.8 4,601 34.0 7,423 4.1 2,408 32.4 5,015 4.1
Balance sheet
Y/E March (` cr) Share Capital Reserve & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash Balances Bank Balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY08 315 12,003 166,457 19.0 5,447 6,165 8,633 199,020 15,258 3,573 53,992 119,502 23.7 2,316 4,381 199,020 22.5 FY09 315 14,338 209,761 26.0 4,374 8,085 10,045 246,919 17,058 4,355 63,385 154,703 29.5 2,397 5,020 246,919 24.1 FY10 315 17,408 249,330 18.9 8,572 10,690 10,318 296,633 18,328 5,146 77,724 186,601 20.6 2,513 6,320 296,633 20.1 FY11 317 21,192 312,899 25.5 20,399 11,190 12,328 378,325 23,777 5,914 95,162 242,107 29.7 3,106 8,259 378,325 27.5 FY12E 317 24,999 378,607 21.0 16,861 12,869 15,967 449,619 24,609 8,992 121,650 278,423 15.0 3,580 12,365 449,619 18.8 FY13E 317 28,927 442,971 17.0 19,715 14,928 18,884 525,742 28,793 10,515 144,945 322,970 16.0 4,061 14,458 525,742 16.9
February 1, 2012
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Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov. /Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE 3.1 0.4 2.7 0.2 2.9 0.9 3.8 2.0 1.8 0.7 1.1 17.3 19.6 3.2 0.4 2.7 0.3 3.0 1.0 4.0 1.9 2.1 0.8 1.4 18.6 25.8 3.1 0.5 2.6 0.3 2.9 1.0 3.9 1.8 2.2 0.7 1.4 18.5 26.6 3.5 0.7 2.8 0.1 2.8 1.0 3.8 1.9 1.9 0.6 1.3 18.6 24.4 3.3 0.8 2.5 0.1 2.6 0.9 3.5 1.7 1.7 0.6 1.2 18.9 22.0 3.3 0.9 2.4 0.1 2.4 0.8 3.2 1.7 1.5 0.5 1.0 18.9 19.4 14.7 2.8 1.4 9.7 2.3 2.1 7.7 1.9 2.3 6.8 1.5 2.3 6.3 1.3 2.9 6.0 1.1 3.1 65.0 342.0 13.0 98.0 416.7 20.0 123.9 514.8 22.0 139.9 628.1 22.0 152.1 734.1 27.5 158.3 863.1 29.5 2.7 0.6 2.0 0.2 77.3 1.6 0.2 1.4 0.4 89.5 1.7 0.5 1.8 0.4 81.2 1.8 0.8 2.3 0.6 73.2 3.0 1.3 2.6 0.6 70.0 4.3 1.5 2.8 0.9 72.5 43.0 71.8 13.0 8.5 38.8 73.8 12.6 8.1 40.8 74.8 14.2 9.1 38.5 77.4 12.4 8.4 36.6 73.5 12.5 8.5 36.0 72.9 12.5 8.4 3.2 46.8 1.1 19.6 3.3 42.3 1.4 25.8 3.2 39.4 1.4 26.6 3.6 41.3 1.3 24.4 3.45 40.7 1.2 22.0 3.43 40.9 1.0 19.4 FY08 FY09 FY10 FY11 FY12E FY13E
February 1, 2012
11
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Ratings (Returns):
February 1, 2012
12