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Punjab National Bank – Good Q2

November 3, 2008

Punjab National Bank (PNB) reported strong Q2FY09 numbers. Net profit was up 31% y-o-y to INR7.1bn and was better than our estimate of INR5.9bn. Key highlight of the result was the net interest income growth at 31% y-o-y, the highest since March 2006 and closely matching the pace of private sector peers. Loan growth too, at 29% y-o-y, for the first time moved above the sector average, having underperformed the sector for the past eight quarters.

Opex grew by 11% yoy (6% higher than MLe) as the bank provided Rs1bn towards impending wage revisions (v/s. Rs250mn in 1QFY09). Asset quality concerns have reduced significantly with gross NPAs declining by 4% qoq to 2.4%. Net NPAs too decreased 24% qoq (at 0.4%). Stringent recovery efforts and controlled fresh delinquencies (2% in H1FY09; 2% in FY08; 2.8% in FY07) have led to significant improvement in asset quality. NPL coverage improved to 83%.

PNB reported a 50bps increase in net interest margin (NIM) on a sequential basis to 3.8% in Q2FY09.With this, the NIMs of PNB stand superior to most state-owned peers and closer to select private sector peers.

PNB is expected to report an EPS of Rs72 – Rs 75 for FY09 and Rs86 – Rs 89 for FY10. Dividend / Share is expected to be Rs 14 to Rs 15.

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