Buy Punjab National Bank; target of Rs 880: KRChoksey

“PNB posted healthy earnings of Rs1,424 crore growing 18.5% Y-o-Y & 23.9% Q-o-Q led by strong core fee income, healthy trading gains, lower OPEX and decline in tax expense. NII went down sequentially by 6.4% mainly due to interest reversal (13bps impact) and funding cost pressures. Net interest margins declined 38bps Q-o-Q to 3.5%. Core fee income showed strong growth of 15% Y-o-Y & 12% Q-o-Q led by LC/LG income, processing fees and bills & remittance. Trading gains increased strongly by 83% Q-o-Q to Rs159 crore. Loan loss provision declined 62% q-o-q driven by higher slippages, however, depreciation on investment was written back by Rs202 Cr. Slippages have increased significantly by 68% q-o-q to Rs2819 crore (4.2% annualized slippage ratio) while cash recoveries saw strong momentum, up 23% Q-o-Q . The bank has also restructured loans amounting to Rs15,334 Cr (5.0%) coming from infrastructure, telecom & aviation. Advances and Deposits growth were 6.5% q-o-q & 11.9% q-o-q respectively. CASA ratio has been stable at 36.2%.The core operating profit and core net profit growth were strong at 21.5% y-o-y and 24.1% y-o-y respectively. Upgrade BUY.”

“Net interest income declined 6.4% Q-o-Q mainly due to 38bps margins contraction sequentially. Marginal declined investment yields, increased high cost bulk deposits and interest reversal (38bps & 13bps impact on NIM and yield on advances respectively) were primary drivers for margin contraction. The management has guided NIM to sustain 3.3-3.5% in FY13. During the quarter, blended loan yield declined 57bps to 10.8% while cost of deposits increased by 6bps Q-o-Q to 6.80%. The investment yield declined by 22bps q-o-q to 7.64%. Noninterest income grew strongly 11% Y-o-Y & 34% Q-o-Q to Rs 1256 crore driven by healthy core fee income growth, sharp rebound in trading gains and healthy recoveries. Core fee based income saw healthy momentum 12% y-o-y & 15% q-o-q to Rs 862 crore while cash recoveries increased sharply 162% Q-o-Q to Rs241 crore. Processing fees, Bill & remittance, income from ATM operation and exchange profits were primarily drivers for core fee income growth. Trading gains were Rs159 crore vs. 87 crore in Q3FY12, up 83% q-o-q.”

“PNB reported healthy earnings and core operating performance during the quarter. Margins contraction, higher provisions and deterioration in asset quality were key disappointments from the result. However, Strong core fee income growth and robust recoveries were key positives from the numbers. We have cut our earnings estimates FY13 by 4.9% to factor in rising credit costs and lower margins. We expect the bank to deliver 13.4% CAGR in net earnings over FY12-FY14. At Rs 755, the stock is trading at 4.5x FY13 earnings and 0.9x FY13 Adjusted book, well priced in asset quality concerns in our view. We upgrade our investment rating from HOLD to BUY on the stock with a target price of Rs 880,” says KRChoksey research report. 

FIIs holding more than 30% in Indian cos

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