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Punjab & Sind Bank: Well on track - Views on News from Equitymaster

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Punjab & Sind Bank: Well on track

Mar 16, 2011

Punjab & Sind Bank declared its 3QFY11 results. The bank has reported 18% YoY and 9% YoY growth in net interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 36% YoY in 9mFY11 on the back of 37% YoY growth in advances.
  • Net interest margin improves to 2.9% in 1HFY11 from 2.7% in 9mFY10 due to stability in CASA proportion and re-pricing of assets.
  • Other income grows by 20% YoY in 9mFY11 despite lower treasury gains.
  • Cost to income ratio rises from 49% to 51% in 9mFY11 due to pension and gratuity provisions.
  • CAR at 14.1% as per Basel II, Net NPA at 0.4% of advances at the end of 9mFY11.

Rs (m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Interest Income 9,827 12,603 28.2% 28,529 35,670 25.0%
Interest Expense 6,550   8,741 33.5% 19,972 24,001 20.2%
Net Interest Income 3,277   3,862 17.9% 8,557 11,669 36.4%
NIM (%)       2.7% 2.8%  
Other Income   760 921 21.2% 2,634 3,171 20.4%
Other Expense 1,865   2,462 32.0% 5,435 7,604 39.9%
Provisions and contingencies   665 609 -8.4% 1,554 1,738 11.8%
Profit before tax 1,507   1,712 13.6% 4,202 5,498 30.8%
Tax   260 359 38.1%    606 1,538 153.8%
Profit after tax/ (loss) 1,247   1,353 8.5% 3,596 3,960 10.1%
Net profit margin (%) 12.7% 10.7%   12.6% 11.1%  
No. of shares (m)         223.1  
Book value per share (Rs)*         125.2  
P/BV (x)         0.8  
* (Book value as on 31st December 2010)

What has driven performance in 9mFY11?
  • Staying ahead of the sector average in terms of growth, Punjab & Sind Bank (PSB) kept its focus on loan growth in the SME and large corporate segments. The bank managed 37% YoY growth in advances in 9mFY11. The growth of 26% YoY in deposits was led by higher growth in low cost deposits (CASA) during the past three quarters. The bank also improved its net interest margins due to the upward re-pricing of loans. The NIMs in fact improved to 2.9% at the end of 9mFY11.

    CASA base remains stable...
    (Rs m) 9mFY10 % of total 9mFY11 % of total Change
    Advances 276,760   378,060   36.6%
    Agriculture 27,676 10% 32,890 8.7% 18.8%
    SME 38,746 14% 59,850 15.8% 54.5%
    Deposits 419,338   527,150   25.7%
    CASA 96,260 23.0% 134,380 25.5% 39.6%
    Term deposits      323,078 77.0% 392,770 74.5% 21.6%
    Credit/Deposit 66.0%   71.7%    

  • As against the RBI's mandate of provision coverage ratio of 70% for all banking entities, PSB had a coverage ratio of 87% at the end of 9mFY11. Although this included loans written off, the net NPA ratio which stood at 0.4% of advances was amongst the lowest in the industry. This shows the bank's conservative stance with regard to provisioning policies.

  • The growth in other expenses is attributable to pension and gratuity provisions in 9mFY11. While the proportion of cost to income is certainly high as compared to other PSU banks we expect this to get normalized in the medium term.

What to expect?
At the current price of Rs 101, the stock is attractively valued at 0.6 times our estimated FY13 adjusted book value. Sustenance of a healthy current and savings account mix, technological upgradation and ability to sustain attractive margins are key to the bank’s healthy growth prospects. The bank may need to dilute equity to strengthen its capital base in the medium term. Although its shareholder returns in the past are comparable to that of the best managed banks, PSB is currently priced at a considerable discount to its PSU peers. We believe that the stock of PSB offers considerable upside and may even double over the next 3 to 4 years. We reiterate our positive view on the bank from a long term perspective.

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Mar 19, 2019 10:57 AM


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