Buy Punjab National Bank - Motilal Oswal

Punjab National Bank (PNB IN; Mkt Cap USD7.1b, CMP Rs1,051, Buy)

Punjab National Bank's 1QFY11 result was in line with our estimate. While PAT grew 29% to Rs10.7b, in line with estimates, NII was significantly higher (8%) than estimates. Key highlights are:

- PNB posted strong loan growth of 5.5% QoQ and 25% YoY. Incremental CD ratio in 1QFY11 was 171% and CD ratio increased to ~77%.

- CASA and savings deposits growth was strong at ~25% YoY. CASA ratio remained stable at 41% on a QoQ basis.

- A 5bp QoQ decline in NIM despite higher savings deposits costs was impressive. Higher incremental CD ratio partially helped to arrest margin decline.

- Fee income growth continued to be muted with just 6% YoY growth. 1QFY11 trading profits were significantly lower at Rs1.2b v/s Rs3.6b a year earlier.

- 1QFY11 asset quality was a negative surprise with slippages of Rs12b (annualized slippage ratio of ~2.6%). Addition to restructured loan portfolio of Rs8.8b (~45bp of the outstanding loan book).

- Provision coverage ratio (cal) declined to 65% from ~70% in 4QFY10.

We largely maintain our earning estimates for FY11 and FY12. The stock trades at 1.4x FY12E BV and 6.1x FY12E EPS. We expect RoE and RoA to remain superior at ~24% and 1.3%+ respectively over FY10-12. Maintain Buy with a target price of Rs1,225 (1.6x FY12E BV).

Source : Equity Bulls

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