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PNB: Slow but steady
May 10, 2010

Punjab National Bank declared its FY10 results. The bank has reported a 12% YoY and 26% YoY growth in interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Interest income grows by 12% YoY in FY10 on the back of 21% YoY growth in advances.
  • Net interest margin improves marginally to 3.6% in FY10 due to higher proportion of CASA.
  • Fee income grows by 22% YoY.
  • Cost to income ratio lower at 39% as against 43% in FY09.
  • CAR comfortable at 14.2% as per Basel II, Net NPA at 0.5% of advances (0.4% in FY09).


Rs (m) 4QFY09 4QFY10 Change FY09 FY10 Change
Interest Income 51,165 56,076 9.6% 191,272 214,669 12.2%
Interest Expense 33,360 31,097 -6.8% 122,953 129,440 5.3%
Net Interest Income 17,805 24,979 40.3% 68,319 85,229 24.8%
NIM (%)       3.5% 3.6%  
Other Income 9,313 8,532 -8.4% 30,647 34,125 11.3%
Other Expense 11,740 11,000 -6.3% 42,062 47,619 13.2%
Provisions and contingencies 2,176 4,591 111.0% 9,235 14,215 53.9%
Exceptional item - 815   - 1,528  
Profit before tax 13,202 17,105 29.6% 47,669 55,992 17.5%
Tax 4,547 5,755 26.6% 16,760 19,994 19.3%
Profit after tax/ (loss) 8,655 11,350 31.1% 30,909 39,053 26.3%
Net profit margin (%)       14.4% 18.2%  
No. of shares (m)       315.3 315.3  
Book value per share (Rs)*         504.8  
P/BV (x)         2.0  
* (Book value as on 31st March 2010)
Exceptional item refers to profit on sale of stake in PNB Housing Finance

What has driven performance in FY10?
  • Keeping its focus on loan growth in the corporate and agricultural segments, PNB managed 21% YoY growth in advances in FY10. The growth of 18% YoY in deposits was with higher growth in low cost deposits (CASA) during the past twelve months. This checked the gradual reduction in PNB’s CASA proportion seen earlier and brought the same to 41% at the end of FY10. The bank also evaded pressure on its net interest margins due to the downward re-pricing of loans. The NIMs in fact improved marginally to 3.6% at the end of FY10.

    Balancing act...
    (Rs m) FY09 % of total FY10 % of total Change
    Advances 1,547,030   1,866,010   20.6%
    Agriculture 40,570 15.6% 302,070 16.2% 25.6%
    Retail 159,470 10.3% 192,140 10.3% 20.5%
    SME 139,400 9.0% 206,590 11.1% 48.2%
    Large corporates 517,320 33.4% 680,490 36.5% 31.5%
    Deposits 2,097,600   2,493,300   18.9%
    CASA 814,600 38.8% 1,018,500 40.8% 25.0%
    Term deposits 1,283,000 61.2% 1,474,800 59.2% 14.9%
    Credit/Deposit 73.8%   74.8%    

  • The overall delinquency rate for the bank showed some signs of stress at the gross and net levels. NPAs went up at the gross level from 1.6% in FY09 to 1.7% in FY10 and at the net level from 0.2% (0.4% including agri debt relief NPAs) to 0.5%. The bank has one of the highest provision coverage ratio (of 81%) in the sector at the end of FY10. This was nevertheless lower than the coverage of 94% at the end of FY09. PNB has one of the largest proportions of agricultural debt due to its presence in the Gangetic belt. This impacted the bank’s asset quality in this portfolio due to debt restructuring.

  • The lower growth in other income in FY10 can be primarily attributed to lower treasury gains despite 22% growth in fee income. The proportion of fee to total income was 17% at the end of FY10.

  • PNB had restructured loans to the tune of Rs 121 bn at the end of FY10, of which loans worth Rs 117 bn were standard assets.

  • The book value per share for PNB shareholders from PNB Housing Finance and PNB Gilts stood at Rs 6 and Rs 13.1 respectively at the end of March 2010.

What to expect?
At the current price of Rs 1,014, the stock is attractively valued at 1.4 times our estimated FY12 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. Also, the bank's healthy CAR is a matter of comfort. Having said that, the low proportion of fee income and agricultural delinquencies are our lingering concerns with regard to the bank. We retain our positive view on the stock.

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