punjab national bank, 1q fy 2014

7/27/2019 Punjab National Bank, 1Q FY 2014

1/12

Please refer to important disclosures at the end of this report 1

Particulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)NII 3,908 3,779 3.4 3,695 5.7Pre-prov. profit 2,974 2,852 4.3 2,841 4.7

PAT 1,275 1,131 12.8 1,246 2.4Source: Company, Angel Research

PNB reported a weak set of numbers for the quarter, affected by asset quality

challenges. The banks operating profit grew at a muted 4.7% yoy. Moreover, it

found no respite from asset quality pressure, as slippages during the quarter

surged to 4.7% (almost half of it contributed by a single exposure to Gems &

Jewelry sector). Gross NPA levels increased sequentially by 12.1%. PCR came off by

417bp qoq and hence, Net NPA levels rose by a much higher 25.2% qoq. Overall,the bank reported a marginal earnings growth of 2.4% yoy.

Business growth muted; NIMs stable sequentially: During 1QFY2014, the bankcontinued its balance sheet consolidation, as its advances and deposits grew at a

subdued pace of around 3.0-4.0% yoy. CASA deposits grew by 12.6% yoy, much

higher than the growth registered in overall deposits and hence, the reported

CASA ratio improved 400bp yoy to 39.6%. Reported NIM for the bank remained

stable at 3.5%.During 1QFY2014, the non-interest income (excluding treasury)

de-grew by 3.4% yoy, on back of lower recoveries (down 2.3% yoy) and poor

performance on the income from exchange transactions front (declined by 23.6%

yoy). Treasury income grew strongly by 155.1% yoy. During the quarter, the bank

witnessed further asset quality deterioration, as the slippages ratio surged to

4.7%. However, recoveries and upgrades, as a proportion to opening advances,

increased to 1.5% for 1QFY2014 as compared to 1.0% for FY2013. As the bank

witnessed a qoq loan book de-growth of 1.2%, the Gross and Net NPA ratio

increased by a much sharper 57bp and 63bp qoq, respectively to 4.8% and 3.0%.

The bank restructured advances worth ~`2,772cr during the quarter, compared to

~`6,444cr restructured in 4QFY2013. Restructuring during the quarter, included

one chunky account (a power project) amounting to around `1,100cr.

Outlook and valuation:We remain cautious on the incremental asset qualitypressures (slippages and incremental restructuring) for the bank, as we take into

account the banks relatively high exposure to stressed sectors/companies, overall

weak macro-economic environment and the recent macro developments. During

1QFY2014, treasury gains aided the bank to neutralize the profitability impact ofasset quality pressures, however in 2QFY2014, taking into account bond yields

movement till now and its AFS book modified duration (at 4.66), the bank is likely

to book treasury losses, relatively much higher than peers. Currently, werecommend a Neutral rating on the stock.Key financialsY/E March (` cr) FY2012 FY2013 FY2014E FY2014ENII 13,414 14,857 16,328 18,744% chg 13.6 10.8 9.9 14.8

Net profit 4,884 4,748 4,774 5,827% chg 10.2 (2.8) 0.5 22.1

NIM (%) 3.3 3.3 3.4 3.4

EPS (`) 144.0 134.3 135.0 164.8P/E (x) 4.1 4.4 4.4 3.6

P/ABV (x) 0.8 0.7 0.7 0.6

RoA (%) 1.2 1.0 1.0 1.0

RoE (%) 21.1 16.5 14.4 15.7

Source: Company, Angel Research, Note: CMP as of July 26, 2013

NEUTRALCMP `596Target Price -

Investment Period -

Stock Info

Sector Banking

Market Cap (` cr) 21,065

Beta 1.1

52 Week High / Low 922/584

Avg. Daily Volume 118,663

Face Value (`) 10

BSE Sensex 19,748

Nifty 5,886

Reuters Code PNBK.BO

Bloomberg Code PNB@IN

Shareholding Pattern (%)

Promoters 57.9

MF / Banks / Indian Fls 19.0

FII / NRIs / OCBs 18.0

Indian Public / Others 5.1

Abs. (%) 3m 1yr 3yr

Sensex 2.4 18.7 9.6

PNB (22.8) (21.2) (42.6)

Vaibhav Agrawal022 3935 7800 Ext: 6808

[email protected]

Sourabh Taparia022 3935 7800 Ext: 6872

[email protected]

Harshal Patkar022 3935 7800 Ext: 6847

[email protected]

Punjab National BankPerformance Highlights

1QFY2014 Result Update | Banking

July 29, 2013


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Punjab National Bank | 1QFY2014 Result Update

July 29, 2013 2

Exhibit 1:1QFY2014 performanceParticulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy) FY2013 FY2012 % chg (yoy)Interest earned 10,405 10,379 0.2 10,545 (1.3) 41,893 36,428 15.0- on Advances / Bills 7,875 7,793 1.1 8,197 (3.9) 31,867 28,447 12.0- on investments 2,439 2,406 1.4 2,283 6.8 9,517 7,692 23.7

- on balance with RBI & others 79 102 (23.2) 54 44.5 325 213 52.9

- on others 12 78 (84.8) 11 8.2 184 77 140.5

Interest Expended 6,497 6,600 (1.6) 6,850 (5.2) 27,037 23,014 17.5Net Interest Income 3,908 3,779 3.4 3,695 5.7 14,857 13,414 10.8Other income 1,342 1,174 14.3 1,166 15.1 4,216 4,203 0.3Other income excl. treasury 995 853 16.6 1,030 (3.4) 3,496 3,664 (4.6)

- Fee Income 666 519 28 666 - 2,169 2,193 (1.1)

- Treasury Income incl. MF Div. 347 321 8.1 136 155.1 720 539 33.6

- Recov. from written off a/cs 85 130 (34.6) 87 (2.3) 422 510 (17.3)

- Others 244 204 19.6 277 (11.9) 905 961 (5.8)

Operating income 5,250 4,953 6.0 4,861 8.0 19,072 17,617 8.3Operating expenses 2,276 2,101 8.3 2,020 12.6 8,165 7,003 16.6- Employee expenses 1,616 1,421 13.7 1,420 13.8 5,675 4,723 20.1

- Other Opex 660 680 (2.9) 601 9.9 2,490 2,279 9.3

Pre-provision Profit 2,974 2,852 4.3 2,841 4.7 10,907 10,614 2.8Provisions & contingencies 1,066 1,478 (27.8) 1,032 3.3 4,386 3,577 22.6- Provisions for NPAs 675 830 (18.7) 900 (25.0) 3,336 2,403 38.8

- Other Provisions 391 648 (39.6) 132 195.5 941 828 13.6

PBT 1,907 1,374 38.8 1,808 5.5 6,522 7,037 (7.3)Provision for Tax 632 243 159.9 563 12.3 1,774 2,153 (17.6)

PAT 1,275 1,131 12.8 1,246 2.4 4,748 4,884 (2.8)Effective Tax Rate (%) 33.1 17.7 1543bp 31.1 202bp 27.2 30.6 (339)bp

Source: Company, Angel Research

Exhibit 2:1QFY2014 Actual vs. Angel estimatesParticulars (` cr) Actual Estimates Var. (%)Net interest income 3,908 3,887 0.5

Other income 1,342 1,111 20.8

Operating income 5,250 4,997 5.0Operating expenses 2,276 2,181 4.4

Pre-prov. Profit 2,974 2,817 5.6Provisions & cont. 1,066 901 18.3

PBT 1,907 1,915 (0.4)

Prov. for taxes 632 651 (2.9)

PAT 1,275 1,264 0.9Source: Company, Angel Research


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July 29, 2013 3

Exhibit 3:1QFY2014 performance analysisParticulars 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)Advances (` cr) 305,066 308,725 (1.2) 294,468 3.6

Deposits (`cr) 396,828 391,560 1.3 385,355 3.0Credit-to-Deposit Ratio (%) 76.9 78.8 (197)bp 76.4 46bp

Current deposits (`cr) 26,718 29,874 (10.6) 25,723 3.9

Saving deposits (` cr) 123,228 123,470 (0.2) 107,425 14.7

CASA deposits (`cr) 149,946 153,344 (2.2) 133,148 12.6

Reported CASA ratio (%) 39.6 40.9 (126)bp 35.6 400bp

CAR (%) 12.4 12.7 (28)bp 12.6 (13)bp

Tier 1 CAR (%) 9.6 9.8 (18)bp 9.3 25bp

Profitability Ratios (%)Cost of deposits 6.4 6.6 (20)bp 7.0 (56)bp

Yield on advances 10.5 10.7 (23)bp 11.5 (102)bp

Yield on investments 7.8 7.9 (7)bp 7.9 (13)bp

Yield on funds 8.5 8.5 (4)bp 9.1 (67)bp

Cost of funds 5.3 5.4 (12)bp 5.9 (65)bp

Reported NIM 3.5 3.5 1bp 3.6 (8)bp

Cost-to-income ratio 43.4 42.4 93bp 41.6 179bp

Asset qualityGross NPAs (`cr) 15,091 13,466 12.1 9,988 51.1

Gross NPAs (%) 4.8 4.3 57bp 3.3 150bp

Net NPAs (` cr) 9,060 7,237 25.2 4,917 84.3

Net NPAs (%) 3.0 2.4 63bp 1.7 130bp

Provision Coverage Ratio (%) 54.7 58.8 (416)bp 62.8 (814)bp

Slippage ratio (%) 4.7 1.3 334bp 3.8 89bp

Credit cost (%) 0.6 0.7 (14)bp 0.8 (22)bp


Business growth remains muted

During 1QFY2014, the bank continued its balance sheet consolidation and

witnessed a muted growth in its business. Its advances and deposits grew at a

subdued pace of 3.6% and 3.0% yoy, respectively.Within advances, segments

such as corporate, retail, and services registered a relatively higher growth of

11.0%, 7.8% and 6.3% yoy, respectively. Housing and Car loan book, within the

retail book grew at a relatively higher 13.9% and 11.8% yoy, respectively.

Overseas advances grew strongly by 28.2% yoy (partly aided by INR depreciation).

As of 1QFY2014, the overseas loan book constitutes ~11% of the banks total

loan book.

On the liabilities front, current deposits witnessed a moderate growth of just 3.9%

yoy (sequentially, it de-grew by 10.6%), while saving deposits grew at a healthy

pace of 14.7% yoy (almost flat sequentially). CASA deposits grew by 12.6% yoy,

much higher than the growth of 3.0% yoy registered in overall deposits.

Consequently, the reported CASA ratio improved 400bp yoy to 39.6%.

During 1QFY2014, the bank shed ~`14,000cr of differential rate deposits

(including CDs). Consequentially, the share of differential rate deposits (including


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July 29, 2013 4

CDs) for the bank reduced substantially from 12.5% as of 4QFY2013 to 8.8% as

of 1QFY2014.

Exhibit 4:Corporate & overseas advances grew at a relatively higher paceParticulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)Agri 36,858 38,055 (3.1) 44,591 (17.3)

Retail 31,573 31,310 0.8 29,280 7.8

MSME 32,432 33,568 (3.4) 30,960 4.8

Medium & Large Corporates 97,137 98,421 (1.3) 87,486 11.0

Comm. Real Estate 8,475 9,220 (8.1) 9,759 (13.2)

Services & Others 54,860 55,501 (1.2) 51,620 6.3

NBFC 10,034 11,052 (9.2) 13,131 (23.6)

Domestic non-food credit 271,369 277,127 (2.1) 266,827 1.7Food credit 6,933 6,057 14.5 6,615 4.8

Domestic credit 278,302 283,184 (1.7) 273,442 1.8Overseas advances 33,310 32,058 3.9 25,987 28.2

Global gross credit 311,612 315,242 (1.2) 299,429 4.1Source: Company, Angel Research

Exhibit 5:Business growth subdued


Exhibit 6:CASA ratio improves yoy


NIM stable at 3.5%

Aided by higher CASA ratio and reduced share of high cost deposits (from 12.5%

to 8.8%), the banks cost of deposits came lower sequentially by 20bp to 6.4% for

the quarter. Overall, the cost of funds declined sequentially by 12bp to 5.3%. The

banks yield on advances and yield on investments declined by 23bp and 7bp qoq

to 10.5% and 7.8% respectively. Overall, the yield on funds for the bank declined

by 4bp qoq to 8.46%. The reported NIM for the bank remained stable at 3.5%.

Going forward, in the coming few quarters, the Management expects the NIM to

be in the range of 3.25-3.5%.

21.2

18.4

13.2

5.

1

3.

6

18.9

17.3

8.

2

3.

2

3.

0

76.4

73.6

77.1

78.8

76.9

70.0

72.0

74.0

76.0

78.0

80.0

-

5.0

10.0

15.0

20.0

25.0

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Adv. yoy chg (%) Dep. yoy chg (%) CDR (%, RHS)

34.6

35.8

36.9

39.2

37.8

9.8

15.6

13.114.3

12.6

-

10.0

20.0

20.0

23.0

26.0

29.0

32.0

35.0

38.0


Calculated CASA ratio (%) CASA yoy growth (%, RHS)


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July 29, 2013 5

Exhibit 7:Yield on funds lower by 4bp sequentially


Exhibit 8:NIM stable sequentially at 3.5%


Subdued performance on the non-interest income front(excluding treasury)

During 1QFY2014, the non-interest income (excluding treasury) de-grew by 3.4%

yoy, on back of lower recoveries and poor performance on the income and

exchange transactions front. During the quarter, the bank witnessed a de-growth

in income from exchange transactions by 23.6% yoy to `162cr, while recoveries

from written-off accounts came in lower by 2.3% yoy to `85cr. Fee income

remained flat yoy at `666cr. Trading profit increased strongly by 155.1% yoy to

`347cr. Overall, other income grew by 15.1% yoy to `1,342cr.

Exhibit 9:Non-interest income remains subdued yoyParticulars (` cr) 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy)CEB 666 519 28.3 666 -

Treasury incl. MF Dividend 347 321 8.1 136 155.1

Forex 162 128 26.6 212 (23.6)

Recoveries 85 130 (34.6) 87 (2.3)

Others 82 76 8.0 65 26.3

Other income 1,342 1,174 14.3 1,166 15.1Other income excl. treasury 995 853 16.7 1,030 (3.4)


Asset quality deteriorates further, as slippages surge on back of

a chunky account

During the quarter, the bank witnessed further asset quality deterioration, as the

slippages ratio surged to 4.7% as compared to 2.9% in entire FY2013. The sudden

spike in slippages is attributed to addition of one legacy account in Gems and

Jewelry segment (`1,660cr) as NPA. The bank reported a healthy performance on

the recoveries and upgrades front. Recoveries and upgrades, as a proportion to

opening advances, increased to 1.5% for 1QFY2014 as compared to 1.0% for

FY2013. Consequently, the Gross and Net NPA levels increased sequentially by

12.1% and 25.2%, respectively. As the bank witnessed a sequential loan book de-growth of 1.2%, the Gross and Net NPA ratio for the bank increased sequentially

by a much sharper 57bp and 63bp, respectively to 4.8% and 3.0%. The PCR

9.13

8.87 8.81

8.50 8.46

7.00

7.50

8.00

8.50

9.00

9.50


(%)

3.60

3.50 3.47 3.51 3.52

2.60

2.80

3.00

3.20

3.40

3.60

3.80


(%)


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July 29, 2013 6

(including technical write-offs) for the bank came off sequentially by 416bp to

54.7%.

Additionally, the bank restructured advances worth ~`2,772cr during the quarter,

compared to ~`6,444cr restructured in 4QFY2013. Restructuring during the

quarter, included one chunky account (a power project) amounting to around

`1,100cr. As of 1QFY2014, its outstanding restructured book, which is stated

borrower-wise, stood at `34,154cr (~11% of its advances). Of the outstanding

restructured book, 40.5% constitutes power sector (majorly discoms).

Exhibit 10:Slippages spike on back of a chunky account


Exhibit 11:...hence, NPA ratio deteriorates qoq

Source: Company, Angel Research;

Cost-to-income ratio up by 179bp yoy to 43.4%

Operating expenses for the bank were higher by 12.6% on a yoy basis, on account

of a 13.8% yoy increase in employee expenses (partly due to provision for

impending wage revision) and 9.9% yoy increase in other operating expenses.

However, growth in operating income came in much lower at 8.0% yoy, and

hence, the cost-to-income ratio for the bank increased 179bp yoy to 43.4%.

Exhibit 12:Steady branch expansion continues


Exhibit 13:Cost ratios up on lower operating income gr.


3.8

7.0

4.0

1.3

4.7

0.8

1.0

0.4

0.70.6

-

0.2

0.4

0.6

0.8

1.0

1.2

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0


Slippages (%) Credit cost (%, RHS)

3.3

4.7

4.6

4.3

4.8

1.7

2.7

2.6

2.4

3.0

62.8

54.3

56.0

58.8

54.7

50.0

52.0

54.0

56.0

58.0

60.0

62.0

64.0

-

1.0

2.0

3.0

4.0

5.0

6.0


Gross NPAs (%) Net NPAs (%) PCR (%, RHS)

5,6

97

5,7

48

5,7

88

5,8

73

5,9

29

6,059 6,0056,058

6,313

6,460

5,600

5,800

6,000

6,200

6,400

6,600

5,500

5,600

5,700

5,800

5,900

6,000


Branches ATMs (RHS)

41.6

44.4

43.0

42.4

43.4

1.81.7

1.7

1.8

1.9

1.6

1.7

1.7

1.8

1.8

1.91.9

2.0

40.0

41.0

42.0

43.0

44.0

45.0


Cost-to-income ratio (%) Opex to average assets (%, RHS)


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July 29, 2013 7

Investment arguments

Strong CASA legacy, but losing market share

PNB has a structural advantage of having a relatively better CASA ratio at 39.6%(as of 1QFY2014), which is driven by strong rural and semi-urban presence,

especially in North India (total of 5,929 branches and 6,460+ ATMs). Although

the CASA ratio improved to 39.6% from 35.6% in 1QFY2013 and is expected to

help sustain the higher NIM, the bank has been losing its CASA market share like

most other public sector banks on account of relatively slow branch expansion and

competition from private banks. PNBs savings market share declined from ~8.0%

to ~6.7% during FY200613.

Investment concerns

Asset quality concerns persist

PNB was one of the highest risk-taking banks immediately post the Lehman crisis

and initially, started delivering very high yield on assets and RoEs of as much as

26%. For the last couple of years, we had been concerned that the inevitable

seasoning of that book would lead to asset quality issues for the bank and that is

what is being reflected in the asset quality performance over the past few quarters.

During FY2012, the slippage ratio for the bank stood at 2.7%, while for FY2013 it

was at 2.9%. During 1QFY2014, the annualized slippage rate surged to 4.7% (half

of which was attributable to a single chunky account). Moreover, the restructured

advances for the bank remain high at ~11% of its overall loan book.

Cumulatively, the bank has witnessed slippages at the rate of 18-20% from its

restructuring book.

Going ahead, we remain cautious on the incremental asset quality pressures

(slippages and incremental restructuring) for the bank, as we take into account the

banks relatively higher exposure to stressed sectors/companies, overall weak

macro-economic environment and the recent macro developments

Outlook and valuation

Recent macro developments (RBI liquidity tightening measures) amidst a weak

macro-environment have clearly indicated that the asset quality pressures for thebanking sector are unlikely to abate as quickly as was anticipated earlier and are

most likely to have a corresponding adverse implication on sectors loan growth

and margins performance, going ahead. During 1QFY2014, treasury gains aided

the bank to neutralize the profitability impact of asset quality pressures, however in

2QFY2014, taking into account bond yields movement till now and its AFS book

modified duration (at 4.66), the bank is likely to book treasury losses, relatively

much higher than peers.

Our view on the sector as a whole and stock in particular, largely depend on RBIs

policy directions and its possible implications on the sectors loan growth, margins

and asset quality. Nevertheless, the stock is currently trading at its historic lows(at 0.7x one year forward ABV compared to its trading range of 1.0-1.6x over the

last eight years and a median of 1.3x). Currently, we recommend a Neutral ratingon the stock.


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July 29, 2013 8

Exhibit 14:Key assumptionsParticulars (%) Earlier estimates Revised estimatesFY2014E FY2015E FY2014E FY2015ECredit growth 14.0 16.0 10.0 16.0Deposit growth 14.0 16.0 10.0 16.0

CASA ratio 38.9 38.6 40.1 39.8

NIMs 3.3 3.4 3.4 3.4

Other income growth 3.3 7.6 5.3 7.5

Growth in staff expenses 12.0 12.0 12.5 12.5

Growth in other expenses 12.0 12.0 12.5 12.5

Slippages 2.5 2.3 3.5 2.5

Coverage 65.0 70.0 57.5 65.0

Source: Angel Research

Exhibit 15:Change in estimatesParticulars (` cr)

FY2014E FY2015EEarlierestimates Revisedestimates Var. (%) Earlierestimates Revisedestimates Var. (%)

NII 16,558 16,328 (1.4) 19,193 18,744 (2.3)

Non-interest income 4,356 4,438 1.9 4,686 4,771 1.8

Operating income 20,914 20,766 (0.7) 23,879 23,515 (1.5)Operating expenses 9,145 9,186 0.4 10,242 10,334 0.9

Pre-prov. profit 11,769 11,580 (1.6) 13,636 13,181 (3.3)Provisions & cont. 3,605 4,348 20.6 4,203 4,354 3.6

PBT 8,164 7,232 (11.4) 9,434 8,828 (6.4)

Prov. for taxes 2,775 2,458 (11.4) 3,206 3,000 (6.4)

PAT 5,389 4,774 (11.4) 6,227 5,827 (6.4)Source: Angel Research

Exhibit 16:P/ABV band


0

400

800

1,200

1,600

2,000

2,400

Apr-04

Sep-0

4

Feb-0

5

Jul-05

Dec-0

5

May-0

6

Oct-06

Mar-07

Aug-0

7

Jan-0

8

Jun-0

8

Nov-0

8

Apr-09

Sep-0

9

Feb-1

0

Jul-10

Dec-1

0

May-1

1

Oct-11

Mar-12

Aug-1

2

Jan-1

3

Jun-1

3

Price (`) 0.5x 0.9x 1.3x 1.7x 2.1x


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July 29, 2013 9

Exhibit 17:Recommendation summaryCompany Reco. CMP(`) Tgt. price(`) Upside(%) FY2015EP/ABV (x) FY2015ETgt. P/ABV (x) FY2015EP/E (x) FY2013-15EEPS CAGR (%) FY2015ERoA (%) FY2015ERoE (%)

AxisBk Buy 1,107 1,348 22 1.2 1.5 7.1 19.1 1.6 18.1

FedBk Neutral 347 - - 0.8 - 6.7 2.9 1.0 12.3

HDFCBk Buy 645 745 16 3.0 3.5 14.3 26.3 1.9 22.8

ICICIBk* Buy 932 1,131 21 1.3 1.6 9.4 17.4 1.6 16.2

SIB Neutral 22 - - 0.8 - 5.3 5.7 0.9 16.2

YesBk Neutral 367 - - 1.5 - 7.4 16.9 1.3 22.8

AllBk Neutral 76 - - 0.3 - 2.3 18.3 0.7 13.6

AndhBk Neutral 74 - - 0.5 - 3.2 (0.3) 0.7 13.2

BOB Neutral 573 - - 0.6 - 4.0 16.8 0.9 16.0

BOI Neutral 184 - - 0.4 - 3.0 16.2 0.7 13.9

BOM Neutral 47 - - 0.5 - 3.6 10.0 0.6 15.3

CanBk Neutral 269 - - 0.4 - 3.1 15.4 0.8 14.2CentBk Neutral 55 - - 0.5 - 3.5 40.1 0.5 12.8

CorpBk Neutral 303 - - 0.4 - 2.9 5.7 0.7 14.2

DenaBk Neutral 59 - - 0.4 - 2.4 3.7 0.7 14.7

IDBI# Neutral 68 - - 0.4 - 3.1 25.1 0.8 13.3

IndBk Neutral 97 - - 0.3 - 2.4 7.0 0.9 14.7

IOB Neutral 45 - - 0.3 - 2.6 67.0 0.5 11.7

J&KBk Neutral 1,129 - - 0.9 - 5.4 (1.7) 1.2 16.8

OBC Neutral 157 - - 0.3 - 2.5 17.0 0.8 12.9

PNB Neutral 596 - - 0.6 - 3.6 10.8 1.0 15.7SBI* Accumulate 1,765 1,979 12 1.0 1.1 6.2 17.5 1.0 17.0

SynBk Neutral 94 - - 0.5 - 3.4 (8.5) 0.6 14.6

UcoBk Neutral 62 - - 0.6 - 4.0 67.5 0.6 13.6

UnionBk Neutral 134 - - 0.4 - 2.8 14.7 0.7 15.2

UtdBk Neutral 43 - - 0.3 - 2.2 54.6 0.6 14.7

VijBk Neutral 42 - - 0.4 - 3.9 9.5 0.4 11.5

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF

Company Background

Punjab National Bank is the country's second-largest PSU bank, with a balance

sheet size of ~`4.8lakh cr and a pan-India network of over 5,900 branches. Thebank's network is primarily spread over northern India, i.e. in Punjab, Haryana

and Uttar Pradesh. Almost 62% of its branches are based in rural and semi-urban

hinterland, which results in a large legacy of low-cost CASA deposits (at 39.6% of

deposits; amongst the highest in the sector).


10/12


July 29, 2013 10

Income statement

Y/E March (` cr) FY10 FY11 FY12 FY13 FY14E FY15ENet Interest Income 8,478 11,807 13,414 14,857 16,328 18,744- YoY Growth (%) 20.6 39.3 13.6 10.8 9.9 14.8Other Income 3,610 3,613 4,203 4,216 4,438 4,771- YoY Growth (%) 23.6 0.1 16.3 0.3 5.3 7.5

Operating Income 12,088 15,420 17,617 19,073 20,766 23,515- YoY Growth (%) 21.5 27.6 14.2 8.3 8.9 13.2

Operating Expenses 4,762 6,364 7,003 8,165 9,186 10,334- YoY Growth (%) 13.2 33.6 10.0 16.6 12.5 12.5

Pre - Provision Profit 7,326 9,056 10,614 10,908 11,580 13,181- YoY Growth (%) 27.5 23.6 17.2 2.8 6.2 13.8

Prov. & Cont. 1,422 2,492 3,577 4,386 4,348 4,354- YoY Growth (%) 44.9 75.3 43.6 22.6 (0.9) 0.1

Profit Before Tax 5,905 6,564 7,037 6,522 7,232 8,828- YoY Growth (%) 24.0 11.2 7.2 (7.3) 10.9 22.1

Prov. for Taxation 1,999 2,130 2,153 1,774 2,458 3,000- as a % of PBT 33.9 32.5 30.6 27.2 34.0 34.0

PAT 3,905 4,434 4,884 4,748 4,774 5,827- YoY Growth (%) 26.4 13.5 10.2 (2.8) 0.5 22.1

Balance sheet

Y/E March (` cr) FY10 FY11 FY12 FY13 FY14E FY15EShare Capital 315 317 339 354 354 354Reserve & Surplus 17,408 21,192 27,476 32,323 36,043 40,546

Deposits 249,330 312,899 379,588 391,560 430,716 499,631

- Growth (%) 18.9 25.5 21.3 3.2 10.0 16.0

Borrowings 8,572 20,399 26,074 28,726 26,041 30,026

Tier 2 Capital 10,690 11,190 11,190 10,895 10,623 10,357

Other Liab. & Prov. 10,318 12,328 13,524 15,019 17,042 19,604

Total Liabilities 296,633 378,325 458,192 478,877 520,818 600,518Cash Balances 18,328 23,777 18,493 17,886 19,382 22,483

Bank Balances 5,146 5,914 10,335 9,249 9,114 10,509

Investments 77,724 95,162 122,703 129,896 138,564 157,388

Advances 186,601 242,107 293,775 308,725 339,598 393,933

- Growth (%) 20.6 29.7 21.3 5.1 10.0 16.0

Fixed Assets 2,513 3,106 3,169 3,358 3,542 3,962

Other Assets 6,320 8,259 9,718 9,763 10,618 12,242

Total Assets 296,633 378,325 458,192 478,877 520,818 600,518- Growth (%) 20.1 27.5 21.1 4.5 8.8 15.3


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Ratio analysis

Y/E March FY10 FY11 FY12 FY13 FY14E FY15EProfitability ratios (%)NIMs 3.2 3.6 3.3 3.3 3.4 3.4Cost to Income Ratio 39.4 41.3 39.8 42.8 44.2 43.9

RoA 1.4 1.3 1.2 1.0 1.0 1.0

RoE 26.6 24.4 21.1 16.5 14.4 15.7

B/S ratios (%)CASA Ratio 40.8 38.5 35.3 39.2 40.1 39.8

Credit/Deposit Ratio 74.8 77.4 77.4 78.8 78.8 78.8

CAR 14.2 12.4 12.6 12.3 12.3 11.7

- Tier I 9.1 8.4 9.3 9.4 9.7 9.5

Asset Quality (%)Gross NPAs 1.7 1.8 2.9 4.3 5.6 5.6

Net NPAs 0.5 0.8 1.5 2.3 3.0 2.4

Slippages 1.8 2.3 2.7 2.9 3.5 2.5

Loan Loss Prov. /Avg. Assets 0.4 0.6 0.6 0.7 0.7 0.7

Provision Coverage 81.2 73.2 62.7 58.8 57.5 65.0

Per Share Data (`)EPS 123.9 139.9 144.0 134.3 135.0 164.8

ABVPS (75% cover.) 514.8 628.2 733.3 802.2 868.7 1,039.2

DPS 22.0 22.0 22.0 27.0 25.5 32.0

Valuation RatiosPER (x) 4.8 4.3 4.1 4.4 4.4 3.6

P/ABVPS (x) 1.2 0.9 0.8 0.7 0.7 0.6

Dividend Yield 3.7 3.7 3.7 4.5 4.3 5.4

DuPont AnalysisNII 3.1 3.5 3.2 3.2 3.3 3.3

(-) Prov. Exp. 0.5 0.7 0.9 0.9 0.9 0.8

Adj. NII 2.6 2.8 2.4 2.2 2.4 2.6

Treasury 0.3 0.1 0.1 0.1 0.1 0.0

Int. Sens. Inc. 2.9 2.8 2.4 2.3 2.5 2.6

Other Inc. 1.0 1.0 0.9 0.8 0.8 0.8

Op. Inc. 3.9 3.8 3.4 3.1 3.3 3.4

Opex 1.8 1.9 1.7 1.7 1.8 1.8PBT 2.2 1.9 1.7 1.4 1.4 1.6

Taxes 0.7 0.6 0.5 0.4 0.5 0.5

RoA 1.4 1.3 1.2 1.0 1.0 1.0Leverage 18.5 18.6 18.0 16.3 15.1 15.1

RoE 26.6 24.4 21.1 16.5 14.4 15.7


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Disclosure of Interest Statement Punjab National Bank

1. Analyst ownership of the stock No

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punjab national bank, 1q fy 2014

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