Punjab Nat. Bank: Higher other income boosts profits - Views on News from Equitymaster

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  • Oct 31, 2014 - Punjab Nat. Bank: Higher other income boosts profits

Punjab Nat. Bank: Higher other income boosts profits

Oct 31, 2014 | Updated on Oct 30, 2019

Punjab National Bank (PNB) declared its results for the second quarter (2QFY15) and first half for the financial year (1HFY15). While the net interest income increased by mere 3.4% YoY for the quarter, the net profits moved up by 13.8% YoY. The profits for first half were up by 11.2% YoY. Here is our analysis of the results.

Performance summary
  • Net interest income (NII) grows by mere 3.4% YoY in 2QFY15, on the back of 13.7% YoY growth in advances.
  • Net interest margin (NIM) declined to 3.3% in 1HFY15 from 3.5% a year ago.
  • Other income moves up by staggering 73.3% YoY in 2QFY15 on the back of recoveries in written off accounts, trading gains and dividend gains.
  • Net NPA (non-performing assets) to advances comes in higher at 3.26% in 2QFY15 from 3.07% in 2QFY14. Also, on sequential basis the NPAs have moved up for the quarter.
  • Capital adequacy ratio currently stands at 11.79% at the end of 2QFY15 as per Basel III norms.

Standalone financial performance snapshot
Rs (m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Interest income 107,335 114,621 6.8% 211,381 230,508 9.0%
Interest expense 67,180 73,109 8.8% 132,150 145,199 9.9%
Net Interest Income 40,155 41,512 3.4% 79,231 85,309 7.7%
Net interest margin (%)       3.5% 3.3%  
Other Income 8,993 15,584 73.3% 22,414 27,948 24.7%
Other Expense 23,800 28,335 19.1% 46,558 53244 14.4%
Provisions and contingencies 18,987 17,679 -6.9% 29,652 26955 -9.1%
Profit before tax 6,361 11,081 74.2% 25,434 33,058 30.0%
Tax 1,306 5,328 307.9% 7,626 13,253 73.8%
Effective tax rate 20.5% 48.1%   30.0% 40.1%  
Profit after tax/ (loss) 5,055 5,753 13.8% 17,808 19,805 11.2%
Net profit margin (%) 4.7% 5.0%   8.4% 8.6%  
No. of shares (m)         362.1  
Book value per share (Rs)*         1007.1  
P/BV (x)         0.9  

What has driven performance in 2QFY15?

  • 2QFY15 turned out to be a decent quarter for PNB with modest 13.8% YoY growth in profits backed by strong non-interest income performance and lower provisions.

  • While the loan book for the quarter has grown by 13.7% YoY, the deposit base has moved up by 16.7% YoY. CASA growth has remained subdued at 9.7% YoY during 2QFY15, and CASA share has stood at 39.9% levels. The credit portfolio was largely driven by agri loan book growth, MSME loan portfolio and retail loans.

  • While the costs have come down, the yields on loan book have stood weaker too. Hence, the margins for the bank have declined for the first half of FY15.

  • The concerns over asset quality continue to linger for PNB. While the gross NPAs were up from 5.14% in 2QFY14 to 5.65% in 2QFY15, the net NPAs too have spiked to 3.26% (2QFY15) from 3.07% a year ago. As highlighted earlier, owing to higher exposure to troubled sectors of the economy, PNB's asset quality continues to remain quite vulnerable. However, on annual basis the slippages have stood higher. That said, decline in slippages during the June quarter 2014 have brought some respite. However, the recoveries and upgradation continue to fall short of expectations.
What to expect?
At the current price of Rs 928, the stock is valued at 0.9 times our estimated FY16 adjusted book value.

PNB being one of the largest banks, and heavily exposed to the agri and corporate loan segment, has been amongst the worst affected by restructured loans. The bank is already undergoing the process of business consolidation to combat macro challenges. The improving core income performance is the outcome of the same. Going forward, although the bad loans are not expected to subside soon, the pace of recoveries and fall in slippages is definitely going to come through. Moreover, the stock has witnessed sharp momentum in recent periods. We, therefore, reiterate our SELL view on the stock.

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Apr 23, 2021 03:37 PM