KRChoksey is bullish on Punjab National Bank (PNB) and has recommended buy rating on the stock with a target of Rs 1380 in its May 5, 2011 research report.
“Punjab National Bank (PNB), reported net profit of the bank increased by 5.8% y-o-y and 10.2% q-o-q to Rs 1,201 crore, well above our estimate of Rs 1,099 crore for the quarter and 13.5% y-o-y to Rs 4,434 crore for the full year. However, after adjusting for the exceptional items in the corresponding period in FY10, the earnings grew by 13.9% and 18.1% y-o-y in the quarter and in FY11 respectively. Net interest income grew lower than our expectations nonetheless sturdy growth in non-interest income off set it. Q4FY11 NII grew by 21.3% y-o-y however declined by 5.4% sequentially to Rs 3,029 crore on the back of strong loan growth (~30%) and resilient margin (3.9%). Non-interest income zipped up 22.5% y-o-y and 33.6% q-o-q to Rs 1,145 crore despite unfavorable base and lower treasury profits thanks to remarkable recoveries and dividend income. The core operating profit and core net profit grew by grew by 12% y-o-y and 21% y-o-y respectively. Assets quality was comfortable due to higher recoveries and up-gradations despite higher slippages.”
“During the quarter, blended loan yield increased by 24bps to 10.8% while cost of deposits increased by 44bps to 5.64%. As a result, the reported margin contracted by 22bps q-o-q to 3.91%. However, as per our analysis, the margin (calc.) moderated sharply (~45bps). We believe that bank will maintain its margin at 3.5% however we factor in 28bps margin compression in FY12. Non-interest income zoomed up 22.5% y-o-y and 33.6% q-o-q to Rs 1,145 crore despite unfavorable base and lower treasury profits thanks to remarkable recoveries and dividend income. The recoveries increased to Rs 221 crore against Rs 140 crore a year ago whereas the dividend income from liquid mutual funds increased to Rs 120 crore up 150% y-o-y. The core fee income increased by 19% y-o-y to Rs 749 crore while treasury profit remained subdued at Rs 53 crore. Assets quality was comfortable due to higher recoveries and up-gradations despite higher slippages. The slippages were quite high increasing 40% q-o-q to Rs 4,353 crore (1.86% of advances). The GNPA declined 3.6% q-o-q but increased 36.2% y-o-y to Rs 4,379 crore (1.79% v/s 1.71% y-o-y). Net NPA increased by 13bps q-o-q to 0.85% as coverage ratio declined by 4bps q-o-q to 73%. We continue to believe that managing delinquencies from the restructured assets pool will remain a challenge.”
“The bank has delivered strong earnings in a challenging business environment. Resilient margins, sharp uptick in core fee income and contained OPEX were key highlights during the quarter. Rising interest rates on deposits and 50bps increase in rate on saving deposits are likely to put pressure on margins in FY12. We have cut our earnings estimates and target price to factor in rising cost of deposits and increase in cost of saving deposits and macroeconomic risks. At Rs 1,118, the stock is trading at 6.7x FY12 earnings and 1.5x FY12 Adjusted book, attractive valuation. We maintain BUY rating on the stock with a target price of Rs 1380. (Potential upside 23%),” says KRChoksey research report.
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To read the full report click on the attachment
Attachments : PNB_KRChoksey_090511.pdf
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