PNB Gilts aim to replicate the strong performance of the last two quarters in the fourth quarter of the year, says Managing Director SK Dubey, But he also quickly cautions, that it would be difficult as various challenges persist in the market.
According to Dubey, the company has a strategy to short sell whenever the interest rates move adversely.
The company's book stood at Rs 2,500 crore whereas the net worth is at Rs 731 crore.
PNB Gilts reported stellar earnings for the quarter ending December 2016. On a year-on-year basis, it posted a net profit of Rs 66 crore versus Rs 9 crore in the same quarter last year, an improvement of 633.3 percent.
Below is the verbatim transcript of SK Dubey’s interview to Latha Venkatesh on CNBC-TV18.
Q: You had a very good Q3, but can Q4 be flat, not give you any gains at all?
A: I don’t think because as you have mentioned, the movement of interest rate during the last two quarters has been not very favourable, but we have still made money during this period.
Q: What is your acquisition cost, is it 6.5, what is the bulk of the acquisition cost of your gilts?
A: It is in the range of 6.3-6.35.
Q: What is your expectation for the remaining part of the quarter, you think gilt prices, you can see the yields going all the way to 7?
A: We feel that it should be in a range between 6.7 and 7. However, beyond a point buying interest comes in bonds.
Q: What is your held to maturity book now and your total portfolio?
A: Held to maturity is almost 7.3 which is what Reserve Bank of India (RBI) permits
Q: Your total portfolio now is?
A: Currently we are in the range of 2,500 which is much less than what we normally maintain. So, when the interest rate movements are slightly adverse, we maintain a lower portfolio and go for higher churning.
Q: Are you sitting on cash?
A: We are not sitting on cash because our networth being only 7.31 and our size of book is 2,500; we are still borrowing from the market.
Q: What is therefore the expectation this quarter, you made a lot of money last time, like a Rs 166 crore, what looks like a reasonable expectation in the current quarter?
A: We are still planning to replicate our Q2 or Q3 position but there are some challenges. However, we have an opportunity when the interest rates are moving adverse we can always short sell. So, we have both strategies with us and we are accustomed to facing these volatilities.
Q: Most banks are selling off their non-core assets as they hunt for capital. PNB has 74 percent stake in PNB Gilts, it must be a very attractive divestment for them, is it?
A: That is why the MD and CEO of the bank in one of the discussions mentioned that the two subsidiaries are doing well and she would be open to an idea of a strategic sale, but of course she was conveying more a principled position than part of any definite plan.