Subscribe to Punjab & Sind Bank IPO - SPA Securities

Punjab & Sind Bank Limited (PSB), a small sized public sector bank established in 1908, is the last of the nationalized banks to come up with equity offering to get listed on the exchanges. Having northern concentration in its branch presence, it has been able to register stellar CAGR of 38% in its Advances & 31% in its deposits over a period of 5 years.

Investment Rationale

Strong Presence in North: PSB currently operates through 926 branches, with 67% of its branch network concentrated in Northern India. It has significant presence in the agricultural belt of India, giving leverage to its priority sector lending as well as offering of other basket of services.

Significant Improvement in Asset Quality: PSB has been able to improve its asset quality backed by concrete efforts to bring down levels of GNPAs & NNPAs to 0.63% & 0.36% respectively v/s NNPAs of 8.1% in FY05. High Provisioning (PCR) at 89.6%, well above the mandatory requirement of 70% lends extra cushion to the asset quality.

Improvement in CAR: Currently, PSB's CAR stands at 13.4%, Tier I being 7.9%. Equity issuance will help PSB buff up the Tier I capital to > 9%, helping improve CAR as well as funding sustained business growth.

Investment Risks

Low CASA at ~25% in its total deposits makes its vulnerable to upside interest rate movements. Also, PSB has recently rolled out its CBS technology, currently only ~30% of its business being covered under CBS with a target to cover ~60% of its business under CBS by March'11.

Valuation & Recommendation

PSB trades at P/BV of 0.96x – 1.02x its FY10 ABV, at Rs113-Rs120 price band. Looking at the growth prospects of PSB and its peer valuations, PSB trades at ~ 15% discount. We recommend SUBSCRIBE to the issue with a long term perspective.

Source : Equity Bulls

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