investors eye

stock update

Punjab National Bank

Reco: Hold

Stock Update
Heavy provisioning dents bottom line; PT revised down to Rs92
Key points

Company details
Price target:

Rs92

Market cap:

Rs14,962 cr

52-week high/low:

Rs181/69

NSE volume:
(No of shares)
BSE code:

48.9 lakh
532461

NSE code:

PNB

Sharekhan code:

PNB

Free float:
(No of shares)

74.45 cr

Shareholding pattern

Public
38%

Promoter
62%

Price chart
180
160
140
120
100
80
May-16

Jan-16

May-15

Sep-15

60

Price performance

(%)

1m

3m

CMP: Rs76

6m 12m

Absolute

-11.4

3.4 -46.5 -47.9

Relative
to Sensex

-11.5

-6.8 -46.5 -45.4

Provisions wipe out profitability: During Q4FY2016, Punjab National Bank (PNB)
reported a loss of Rs5,367 crore owing to a massive provisioning to the tune of
Rs10,485 crore. The net interest income declined by 27.0% year on year (YoY) owing
to heavy interest reversals on account of higher slippages. During the quarter,
margins declined by 15 basis points (BPS) quarter on quarter (QoQ) owing to
marginal increase in cost of funds (up 3BPS QoQ) while yields declined. The noninterest income during the quarter increased by 35.8% YoY owing to Rs1,326-crore
recoveries from written-off accounts (up 297% YoY).
Business growth tepid; asset quality deteriorates sharply: During Q4FY2016,
asset quality reported a sharp decline as slippages surged to Rs23,545 crore versus
Rs12,712 crore QoQ. Accounts worth ~Rs11,000 crore were categorised into nonperforming assets (NPAs) due to RBIs asset quality review (AQR). Discom loans worth
Rs1,700 crore slipped into NPA. Though RBIs AQR has been dealt with, the bank
has a restructured book of ~Rs20,144 crore, while there are loans worth Rs11,000
crore in SMA-2 category which could prove to be a cause of worry. The management
however expects higher recoveries (~Rs15,000-20,000 crore) during FY2017 which
would arrest the worsening of asset quality. Advances during the quarter grew at
a modest pace of 8.4% YoY, retail and SME advances reported a healthy growth of
19.4% and 79.1% YoY respectively while corporate loan book moved up by 6.1% YoY.
Valuation and outlook: PNBs high exposure to risky corporate and high stressed
loan book (gross NPA + restructured), the asset quality issues may persist in near
term. However, since AQR has been dealt with and intended heavy recoveries
could help the asset quality to show some improvement. The bank has a strong
liability franchisee (current account and savings account > 40%) which could keep
the funding cost low and cushion margins to an extent. We have revised down our
FY2017E and FY2018E earnings and rolled over our valuations to FY2018E. We have
valued the bank at 0.7x its FY2018E ABV, leading to a revised price target of Rs92,
and maintained our Hold rating on the stock.
Results
Particulars
Interest income
Interest expense
Net interest income
Non-interest income
Net total income
Operating expenses
-Employee expenses
-Other operating expenses
Pre-provisioning profit
Provisions
Profit before tax
Tax
Profit after tax
Asset quality
Gross NPLs
-Gross NPLs (%)
Net NPLs
-Net NPLs (%)
Capital adequacy (%)
CAR
Tier I
Key reported ratios (%)
NIM
CASA
Sharekhan

Q4FY16
10,824.0
8,056.3
2,767.7
2,452.2
5,219.9
1,992.0
1,007.6
984.5
3,227.9
10,485.2
-7,257.4
-1,890.2
-5,367.1

Q4FY15
11,650.5
7,858.9
3,791.6
1,805.1
5,596.7
2,394.0
1,506.9
887.2
3,202.7
3,834.2
-631.5
-938.1
306.6

YoY (%)
-7.1
2.5
-27.0
35.8
-6.7
-16.8
-33.1
11.0
0.8
173.5
1,049.2
101.5
-1,850.8

Q3FY16
12,220.6
8,101.0
4,119.6
1,670.6
5,790.2
2,872.4
1,991.2
881.2
2,917.9
3,775.5
-857.7
-908.7
51.0

Rs cr
QoQ (%)
-11.4
-0.6
-32.8
46.8
-9.9
-30.6
-49.4
11.7
10.6
177.7
-746.2
-108.0
-10,621.7

55,818.3
12.90
35,422.6
8.61

25,694.9
6.55
15,396.5
4.06

117.2
635 BPS
130.1
455 BPS

34,338.2
8.47
22,983.4
5.86

62.6
443 BPS
54.1
275 BPS

11.28
8.41

12.21
9.30

-93 BPS
-89 BPS

11.25
8.52

3 BPS
-11 BPS

2.60
41.95

2.79
40.57

-19 BPS
138 BPS

2.75
40.38

-15 BPS
156 BPS

May 18, 2016

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Asset quality (%)

CASA (%)

14.0%

43.0%

12.0%

42.0%

10.0%

41.0%
40.0%

8.0%

39.0%

6.0%

38.0%

4.0%

37.0%

2.0%

36.0%

0.0%
Q4FY13

Q4FY14
Gross NPA

Q4FY15

35.0%

Q4FY16

34.0%

Net NPA

Q4FY13

NIM (%)

Q4FY14

Q4FY15

Q4FY16

Advances (Rs cr)

3.8%

420000

3.5%

400000

3.3%

380000

16.0%
12.0%
8.0%

3.0%

360000

2.8%

4.0%

340000

2.5%

Q4FY13

Q4FY14

Q4FY15

Advances (Rs crs)

Q4FY16

Non-interest income (Rs cr)

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

2.0%

Q3FY15

0.0%

Q2FY15

320000

2.3%

Growth-RHS (YoY)

One-year forward P/BV band

2,800

80%

2,400

1.7

60%

2,000

0.7

0%

Non Interest Income (Rs.Cr)

May-10

Growth %

Sharekhan

P/BV

May 18, 2016

+1 Mean

5 year mean

May-16

0.2

Q4FY16

Q3FY16

Q2FY16

Q1FY16

Q4FY15

Q3FY15

Q2FY15

-20%

Q1FY15

May-15

400

May-14

20%

800

May-13

1,200

1.2

May-12

40%

May-11

1,600

-1 Mean

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Profit and loss statement

Rs cr

Particulars

FY14

Net interest income

FY17E

FY18E

16,146 16,556 15,312 16,930

21,078

Non-interest income
Net total income

4,577

FY15

6,994

7,936

20,723 22,446 22,189 23,924

29,014

Operating expenses

5,891

FY16

9,338 10,492

6,877

11,365

12,748

Pre-provisioning profit 11,384 11,955 12,216 12,559

9,972

16,266

Provisions

6,694

7,998

17,954

10,282

11,364

Profit before tax

4,691

3,957

-5,738

2,277

4,902

Tax

1,348

896

-1,763

637

1,632

Profit after tax

3,343

3,062

-3,974

1,639

3,270

Key ratios
Particulars
Per share data (Rs)
Earnings
Book value
Adj. book value
Dividend
Spreads (%)
Yield on advances
Cost of deposits
Net interest margins
Operating ratios (%)
Credit to deposit
Cost to income
CASA
Non interest income /
Total income
Assets/Equity (x)
Return ratios (%)
RoE
RoA
Asset quality ratios (%)
Gross NPA
Net NPA
Growth ratios (%)
Net interest income
Pre-provisioning profit
Profit after tax
Advances
Deposits
Valuation ratios (%)
P/E
P/BV
P/ABV
Capital adequacy (%)
CAR
Tier I

Balance sheet
Particulars

FY14

FY15

FY16

FY17E

FY18E

39,080

38,310

39,641

42,296

501,379 553,051

597,295

662,998

Liabilities
Networth

35,893

Deposits

451,397

Borrowings

48,034

45,671

59,755

58,891

68,775

Other liabilities
& provisions

15,096

17,205

16,274

29,826

32,811

Total liabilities

550,420

603,334 667,390 725,654 806,880

Assets
Cash & balances
with RBI

22,246

24,225

26,479

26,878

29,835

Balances with
banks & money
at call

22,973

31,709

47,144

49,501

51,976

Investments

143,786

151,282 157,846

184,608

204,491

Advances

349,269

380,534 412,326

453,558

512,521

Fixed assets

3,420

3,551

5,223

5,745

6,320

Other assets

8,728

12,031

18,373

5,363

1,737

Total assets

550,420

603,334 667,390 725,654 806,880

FY14

FY15

FY16 FY17E FY18E

18.5
189.6
133.6
2.0

16.5
200.9
115.3
3.3

-20.2
185.9
-13.7
0.0

8.3
192.7
46.4
1.3

16.7
206.2
131.9
2.7

9.8
6.0
3.4

9.5
5.8
3.1

8.7
5.7
2.6

8.8
5.6
2.4

9.1
5.6
2.8

77.4
45.1
41.3

75.9
46.7
40.6

74.6
44.9
40.1

75.9
47.5
42.7

77.3
43.9
44.3

22.1

26.2

31.0

29.2

27.4

15.0

15.4

16.4

17.9

18.7

9.7
0.6

8.2
0.53

-10.3
-0.6

4.2
0.2

8.0
0.4

5.3
2.9

6.5
4.2

12.8
8.6

10.6
6.3

8.7
2.8

8.7
4.4
-29.6
13.1
15.3

2.5
5.0
-8.4
9.0
11.1

-7.5
10.6
2.2
2.8
-229.8 -141.2
8.4
10.0
10.3
8.0

24.5
29.5
99.5
13.0
11.0

4.1
0.4
0.6

4.6
0.4
0.7

-3.8
0.4
-5.6

9.1
0.4
1.6

4.6
0.4
0.6

11.5
8.9

9.9
7.8

12.2
9.3

11.3
8.4

10.8
7.7

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Sharekhan

May 18, 2016

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