Reduce Punjab National Bank; target of Rs 950: KRChoksey

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Reduce Punjab National Bank; target of Rs 950: KRChoksey

KRChoksey is bearish on Punjab National Bank (PNB) and has recommended reduce rating on the stock with a target of Rs 950 in its February 2, 2012 research report.

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KRChoksey is bearish on Punjab National Bank (PNB) and has recommended reduce rating on the stock with a target of Rs 950 in its February 2, 2012 research report.

"PNB reported muted PAT of Rs1,150 crore growing 5.6% y-o-y but down 4.6% q-o-q due to higher provisions. Net interest income grew modestly by 10.4% y-o-y & 2.4% q-o-q to 3,537 crore aided by 5.5% q-o-q loan growth and 6bps contraction in NIMs q-o-q basis. Core fee income showed strong growth of 23% y-o-y led by bills & remittance, processing fees and exchange income. Trading gains were Rs87 crore vs. 53 crore in Q2FY12. Loan loss provision declined 43.6% q-o-q, however, depreciation on investment declined 11.0% q-o-q to 143 crore. Slippages have increased significantly by 69.2% q-o-q to Rs1,682, resulted into 82% q-o-q rise in loan loss provisions. The bank has also restructured loans amounting to Rs1,884 (0.7%) during the quarter. Advances and Deposits growth were 5.5% q-o-q & 4.3% q-o-q respectively. CASA ratio declined 90bps q-o-q to 36.2%.The core operating profit and core net profit growth were subdued at 14.4% y-o-y and 5.7% y-oy respectively."

"Net interest income grew by 10.4% y-o-y 2.4% sequentially to Rs 3,537 crore driven by steady loan growth (~18.7%) and 6bps sequential contraction in NIMs. Decline in NIMs was largely attributable to strong growth in term deposits and high growth in wholesale loan book. During the quarter, blended loan yield increased by only 5bps to 11.97% while cost of deposits increased by 22bps to 6.74%. The investment yield increased by 8bps q-o-q to 7.86% reflecting higher rates on incremental book. Noninterest income grew strongly 11% y-o-y to Rs 954 crore driven by strong core fee income growth, sharp rebound in trading gains and healthy recoveries. Core fee based income saw strong momentum 23% y-o-y & 11% q-o-q to Rs 768 crore while cash recoveries were lower at Rs 92 crore vs. Rs68 crore in Q2FY12. Processing fees, Bill & remittance, income from ATM operation and exchange profits were primarily drivers for core fee income growth. Trading gains were Rs87 crore vs. 53 crore in Q2FY12, up 64% q-o-q."

"PNB reported weak earnings and core operating performance during the quarter. Margins contraction, higher provisions, decline in CASA ratio and deterioration in asset quality were key disappointments from the result. Deterioration of asset quality and possibility of further restructuring in coming quarters remain key investment risks. We have cut our earnings estimates FY12 & FY13 by 3.5% and 2.1% respectively to factor in rising slippages and provisions. We expect the bank to deliver 15.3% CAGR in net earnings over FY11-FY13. At Rs 940, the stock is trading at 5.1x FY13 earnings and 1.1x FY13 Adjusted book, fairly valued given the asset quality concerns. We downgrade our investment rating to REDUCE on the stock with a target price of Rs 950. We also recommend accumulating the stock below Rs800 as value buying opportunity," says KRChoksey research report.

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