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Monday, December 8, 2008

Punjab National Bank - Good results - Safe Large Cap Stock

Punjab National Bank
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs587
Current market price: Rs452

Results exceeds expectations


Result highlights

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Punjab National Bank (PNB) has reported a profit after tax (PAT) of Rs707.1 crore for Q2FY2009, indicating a growth of 31.3% during the quarter. The PAT is above our estimate of Rs611 crore.
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The net interest income (NII) for the quarter stood at Rs1,712.3 crore, up a strong 32.6% year on year (yoy). The growth in the NII was primarily driven by a healthy growth in the advances and an expansion in the margin.
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The reported net interest margin (NIM) witnessed an expansion of 30 basis points to 3.78%. The expansion was the result of a hike in the lending rates (yields expanded by 134 basis points in Q2FY2009) and was partly offset by a higher cost of funds (a 53-basis-point increase). The bank has announced a 50-basis-point cut in its prime lending rate (effective immediately) and peak deposits rates (effective from December 1, 2008).
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The non-interest income too registered a healthy 41.7% growth yoy to Rs662.8 crore. The strong growth, despite a weaker treasury performance, was achieved on the back of a robust growth in fee income and recoveries.
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The operating expenses increased by 11.4% yoy to Rs1,007.2 crore. The increase was primarily driven by the other operating expenses (up 20.9% yoy) as the staff expenses grew by a moderate 7.5% yoy. The bank made a provision of Rs100 crore towards wage revision during the quarter.
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Interestingly, the provisions and contingencies jumped four fold to Rs317.7 crore. The spike in the provisions was due to higher NPA provisions and partly due to a lower base in the year-ago quarter.
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The advances registered a growth of 28.5% yoy to Rs130,432 crore while the deposits were up by 24.2% yoy to Rs186,315 crore. The current account and savings account (CASA) ratio declined by ~500 basis points to 38.8% but remained one of the best among peers.
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The asset quality improved yoy both on absolute and relative bases. The gross non-performing assets (GNPAs) in percentage terms stood at 2.37%, significantly down from 4.57% a year ago, while the net non-performing assets (NNPAs) in percentage terms declined to 0.42% from 1.88% a year ago.
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The capital adequacy ratio (CAR) as at the end of Q2FY2009 stood at a comfortable 13.64% based on the Basel II requirements compared with 12.58% (based on Basel I requirements) a year ago.
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We have revised our estimates for FY2009 upwards while we maintain our FY2010 estimates, after factoring in the additional information. At the current market price of Rs452, the stock trades at 5.7x 2009E earnings per share (EPS), 3.0x 2009E pre-provisioning profit (PPP) per share and 1.1x 2009E book value (BV) per share. We maintain our Buy recommendation and our price target on the stock.

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