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Punjab National Bank – Results Above expectations

May 9, 2010

PNB reported earnings of Rs11.4bn, a +30% yoy growth (9% ahead of est.), but was only 3-4% ahead of est. if adj. for one-off gain (UTI MF stake sale). But, more importantly, core earnings sprung a surprise with operating earnings (+20% higher) driven by sharply lower opex (base effect as 4QFY09 had very high wage prov.). PNB has a buffer (wage prov. at 21% vs. settlement at 17.5%). Top line (NII) grew 40% yoy (in line), driven by +21% yoy vol. growth and rising LDRs (up +100bps yoy to 75%) and margins rising 66bps yoy to ~4.0% on deposit re-pricing and CASA (up +200bps yoy to 41%). Core fees grew 11% yoy. Tier 1 at 9.2%.

PNB took higher loan write-offs this quarter – included in loan loss provisions of Rs5.1bn (1.1% of loans). The bank’s gross NPLs remain stable at 1.7% (or Rs32 bn), up only 2% qoq; however, net NPLs rose 21% qoq to Rs9.8 bn (0.53% of loans). Asset quality was stable during the quarter, as gross NPLs remained flat qoq to Rs32 bn; gross NPL ratio being at 1.7%.

PNB Earnings Estimates for FY 11 and FY 12 and Stock Target:
HDFC Sec – 132 and 154
Goldman Sachs – 145 and 170 with target of 1170
BOFA Merrill -153 and 193 with target of 1250
Credit Suisse – 118 and 155 with target of Rs 1167
Kotak – 128 and 156 with target of Rs 1150

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