Views on Punjab National Bank 3QFY2014 results - Angel Broking

Views of Mr. Vaibhav Agrawal (VP- Research – Banking, Angel Broking) on Punjab National Bank 3QFY2014 results:

"Punjab National Bank (PNB) reported improvement in asset quality numbers during the quarter. Advance growth for the bank came in moderate at 10% yoy, which reflected in NII growth of 13% yoy. Non-interest income de-grew by 3% yoy, thereby resulting in 10% yoy growth in operating income, in-line with our expectations. As expected, the bank reported yoy flat pre-provisioning profit. Over last eight quarters, the bank had witnessed severe asset quality pain, as both Gross and Net NPAs have more than doubled over the period. During 3QFY2014, in-line with management's guidance, slippages for the quarter more than halved on a yoy basis to around Rs. 1500cr (Slippage rate of 1.9%), while restructuring during the quarter were also lower qoq at Rs. 2150cr vs. Rs. 2700cr in 2QFY2014. Sequentially lower slippages resulted in qoq flat Gross NPAs. Provisioning expenses for the bank also nearly doubled yoy to Rs. 1590cr, leading to 250bp qoq improvement in PCR to 58.6% and 5.5% qoq decline in Net NPAs. The bank strategically underwent a consolidation phase (marked with subdued growth in balance sheet) over last four-five quarters, but now targets to catch up with industry growth rates. The bank's management (which have been historically reasonably cautious on its asset quality), now believe that the worst is over in terms of asset quality and expect asset quality pressures to moderate hereon. However, we remain watchful on incremental asset quality pressures for the bank, in the near term, as negative surprises on the asset quality still cannot be entirely ruled out. At CMP, the stock trades at valuations at 0.5x FY2015E ABV. With increasing expectations of reversal in interest rate cycle in early part of next fiscal, from a medium term perspective, we recommend investors with higher risk appetite to Buy the stock."

Source : Equity Bulls

Keywords