Hold Punjab National Bank: Ventura

“Punjab National Bank’s total income was higher by 27.6% yoy to Rs. 10,956 crore aided by a 30.1% yoy increase in interest income to Rs. 9,679.7 crore. Non - interest income also posted a growth of 11.4% yoy to Rs. 1,276 crore. Earnings registered a growth of 18.6% yoy to Rs. 1,424.1 crore as against 1,201 crore in Q4FY11 led by lower operating expenses (-17% yoy) and lower taxes (-16.2% yoy). Cost to income ratio for Q4FY12 stood at 35.9% as compared to 39.9% in Q4FY11.”

“PNB’s advances posted a healthy growth of 22.1% yoy to Rs. 2,97,892 crore, whereas deposits also grew in line and posted a growth of 21.3% yoy to Rs. 3,79,588 crore. Share of CASA deposits in the total deposits fell to 36.2% from 39.2% in FY11 but remained flat sequentially. The Asset quality deteriorated significantly as there were fresh slippages of Rs. 6,183 crore taking the gross NPA’s to 2.93% from 1.79% in FY11. Further, slippages came in uniformly from all the segments. Net NPA’s stood at 1.52% as compared to 0.85% in FY11. The coverage ratio also fell to 62.73% as against 73.2% in FY11. Adding to the disappointing asset quality were the restructured assets. Fresh restructured assets in Q4FY12 amounted to Rs. 8,601 crore taking the total restructured assets for FY12 to Rs. 15,334 crore. Out of the total book, about Rs. 10,000 crore has been contributed by infrastructure consisting of power, followed by telecom tower business and aviation. Cumulative restructured asset book stands at Rs. 25,009 crore amounting to ~10% of total advances.”

“NIM’s also fell by 34 bps yoy and stood at 3.5% partially attributable to a reversal of ~Rs. 125 crore on account of the income booked of the NPA accounts and lower yield on advances. However, for the full year NIM remained at 3.84% as compared to 3.96% in FY11. The management has guided for NIM’s in the range of 3.5% for the current fiscal year. Interest income for the full year was higher by 35% yoy and stood at Rs. 36,428 crore as compared to Rs. 26,986 crore for FY11. Interest expense witnessed a steep rise of 51.6% yoy to Rs. 23,014 crore on account of higher cost of funds (5.6% vs 4.5%) and deposits (6.5% vs 5.2%). Net Interest Income for the full year rose by 13.6% yoy and stood at Rs. 13,414 crore. Subsequently, profits for the full year were reported at 4,884 crore (+10.2% yoy).”

“Higher amount of restructured assets and deteriorating asset quality are expected to remain a concern in the near term. However, given the guidance of the bank to grow 1-2% better than the industry and attractive valuations we recommend a HOLD on the stock. At a CMP of Rs. 746, the stock is trading at 0.8x and 0.7x its FY13E and FY14E P/B,” says Ventura research report.

Public holding more than 90% in Indian cos    

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