Buy PNB Gilts: Networth

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Buy PNB Gilts: Networth

Networth Stock Broking is bullish on PNB Gilts and has recommended a buy rating on the stock. At the CMP of Rs 19.9, the company is trading at 16.9x FY07 EPS of Rs.1.18 and P/BV of 0.53x FY07 BV of Rs 37.51.

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Networth Stock Broking is bullish on PNB Gilts and has recommended a buy rating on the stock. At the CMP of Rs 19.9, the company is trading at 16.9x FY07 EPS of Rs.1.18 and P/BV of 0.53x FY07 BV of Rs 37.51.

Networth Stock Broking report on PNB Gilts:

Possible unlocking of capital for PNB and PNB Gilts :

We believe a merger of PNB and PNB Gilts could add capital to the bank and enhance its CAR in a scenario of capital constraint and robust credit growth. PNB Gilts cater to the same business segments mainly trading in G-secs, mutual fund distribution, corporate advisory services, retailing G-secs and the like. Hence, the merger of the two entities would unlock the capital in PNB Gilts and make it available for the growth of the consolidated entity. Capital Adequacy Ratio (CAR) as on March 31, 2007 stands at 34.36% as against RBI stipulation of 15%. PNB's CAR stands at 12% as on March 31, 2007 against the stipulated 9%.

During the year 2006-07, various factors like RBI hiking the repo rates by 125 bps, CRR by 100 bps, rise in US treasury prices, softer crude oil prices and tight liquidity conditions resulted in an increase in the yield on 10-year benchmark G-sec from 7.52% as on March 31, 2006 to 7.94% as on March 31, 2007. Despite upward pressure on interest rates, the company made a profit before tax of Rs 163.830 million. We expect the rates may be hiked by 25bps on the maximum side and we expect the rates to correct post stabilization in interest rates in India, hereon. The fall in interest rates will be a significant positive for the G-sec market bolstering the demand for the same.

Valuation:

PNB Gilts posted a profit in a rising interest rate scenario. We expect a possible unlocking of value for PNB and PNB Gilts in case of a merger of the two entities. At the CMP of Rs 19.9, the company is trading at 16.9x FY07 EPS of Rs.1.18 and P/BV of 0.53x FY07 BV of Rs 37.51. We recommend 'buy' subject to the realisation of the above-mentioned triggers.