Buy Punjab National Bank; target Rs 1309: Dolat Capital

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Buy Punjab National Bank; target Rs 1309: Dolat Capital

Dolat Capital is bullish on Punjab National Bank (PNB) and has recommended buy rating on the stock with a target of Rs 1309 in its January 10, 2012 research report.

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Dolat Capital is bullish on Punjab National Bank (PNB) and has recommended buy rating on the stock with a target of Rs 1309 in its January 10, 2012 research report.

"Punjab National Bank (PNB)'s management expects total business growth in proximity of 18-19% in Q3FY12 compared to 22.5% in H1FY12. On business volume growth front, we expect credit and deposit growth of 18% and 21.5% respectively in FY12 and 20.3% and 20.2% respectively in FY13. In Q2 FY12, PNB's credit grew at 19% and deposits at 25%. It continues to focus on MSME, Service and mortgage financing under retail sector for growth in loan book. MSME has been a key growth area. On the deposit front, there is no major change in profile since end-Jan 2011. Total bulk deposits and CD account for 22-24% of total deposits, though CASA deposit share has been gradually drifting."

"The bank's management expects high margin to aid overall profitability even in ongoing difficult phase in asset quality. We believe gradual increase in whole-sale deposit rates and bank's higher dependence on the deposits could impact margin going forward. In FY12, we factor in 139 bps increase in the bank's cost of deposits. We expect the bank's margin to drift by 30 bps and 11 bps in FY12 and FY13 to 3.3% and 3.2% (on yearly average basis) respectively. On asset quality front, the bank's management expects next two quarters (Q3FY12 & Q4FY12) to be the worst phase with sharp rise in restructured loan book; thereafter, they expect things to improve. Loan-restructuring proposals are expected to come from power, textile, and iron & steel sectors. The bank's total exposure to power, textile, and iron & steel sectors were at Rs 155bn (13% of advances), Rs 72bn (6.2% of advances) and Rs 108bn (9.2% of advances). The bank's exposure to Kingfisher of Rs 8.5bn has already been restructured and its exposure to Air India of Rs 22bn might come for restructuring in Q4Y12. In absence of consensus between banks and government officials, the account has not gone for CDR as yet."

"Overall, the PNB's management sounded largely negative on asset quality at-least for next two quarters. The bank's management indicated that strength in margin would absorb higher credit cost going forward. In FY11-13, we expect PNB's business to grow 20% CAGR on the back of 21% growth in deposits and 19% growth in credit book. We estimate that in FY12 and FY13, its margins will drift down by 30bps and 11bps to 3.3% and 3.2% respectively. During FY12-13, we estimate PNB's RoAA and RoAE in the 1.1-1.2% and 21-22% ranges respectively. At current market price, the stock quotes at 1.2x and 1.0x ABV FY12 and FY13 respectively and at 3.0% dividend yield. We maintain our Buy rating on the stock with a price target of Rs 1,309 at 1.6x adjusted book value FY13," says Dolat Capital research report.

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To read the full report click on the attachment