Punjab National Bank Ltd Q2FY20 Result – Non-Interest income growth led to in-line Net revenue; Higher than expected deterioration in asset quality

05 Nov
Concern

Punjab National Bank Ltd Q2FY20 Result – Non-Interest income growth led to in-line Net revenue; Higher than expected deterioration in asset quality

Punjab National Bank Ltd Q2FY20 Result – Non-Interest income growth led to in-line Net revenue; Higher than expected deterioration in asset quality

Hits:

·    Net Interest Income growth of 7% YoY was led by 7bps YoY improvement in NIMs and flat YoY growth in Advances.

·    Non-interest income grew by 33% YoY to INR 2,265cr largely due to 175%YoY growth in Trading income at INR 330cr and 50% YoY growth in processing fees at INR 110cr.

·    15% YoY growth in Net Revenue and 460bps YoY improvement in cost-to-income ratio led to 25% YoY growth in PPoP at INR 3,562cr.

·    Inspite of advances being flat on YoY basis, deposits grew at 7% YoY along with 90bps YoY improvement in CASA ratio which stood at 42.1% during the quarter.

·    Overall retail advances grew by 18.8% YoY to INR 96,457cr (20% mix in overall gross advances). This was largely driven by Housing/Mortgage loan book which grew by 28%/ 16% YoY respectively.

·    NIM (cal.) improved by 7bps YoY to 2.3% in Q2FY20.

Miss:

·    Annualized credit cost of 2.5% in this quarter is higher than our estimation of 2.0%.

·    GNPA/NNPA increased by 27bps/ 48bps QoQ to 16.8%/ 7.7%.

·    Fresh Slippages increased by 58% QoQ to INR 7,462cr (Barring Q4FY18 which witnessed elevated slippages due to Nirav Modi scam, this was one of the highest slippages reported by the bank in last 12 quarters)

·    Advances de-grew by 6.3% on QoQ basis as against our expectation of flattish advances growth on QoQ basis.

House View :

·    Overall, we believe the result was below our expectation where non-interest income supported Net Revenue growth and not core Net Interest Income, Asset quality deteriorated, advances de-growth on QoQ basis and higher slippages.

·    Management in the TV interview also gave few guidance for FY20E. Some of the guidance for FY20E mentioned are: Credit cost of 2.0%-2.5%, Slippages of INR 19,000cr and ROA of 0.4%. Inspite of flattish loan book growth in H1FY20, Management is confident of achieving 8%-10% loan book growth for entire FY20E.

Valuation

At the CMP of INR 65, stock is trading at 0.7x FY21 ABV

INR Cr Q2FY20  Q2FY19  %change  Q1FY20  %change  H1FY20  H1FY19  %change
Interest Earned          13,292          12,326 7.8          13,087 1.6          26,378          25,439 3.7
Interest Expended             9,028             8,352 8.1             8,945 0.9          17,973          16,774 7.2
Net interest income             4,264             3,974 7.3             4,141 3.0             8,405             8,666 -3.0
Other Income             2,265             1,710 32.5             2,075 9.1             4,340             3,669 18.3
Net revenue             6,528             5,684 14.9             6,217 5.0          12,745          12,335 3.3
Operating expenses             2,967             2,844 4.3             2,735 8.5             5,702             5,301 7.6
Employee Exp             1,675             1,662 0.8             1,682 -0.4             3,356             3,089 8.7
Other Expenditure             1,292             1,183 9.2             1,054 22.6             2,345             2,212 6.1
Operating Profit             3,562             2,839 25.4             3,481 2.3             7,043             7,034 0.1
Provisions and Contingencies             2,929             9,758 -70.0             2,023 44.8             4,952          15,516 -68.1
PBT                633           -6,919 n.a             1,458 -56.6             2,091           -8,482 n.a
Taxes                126           -2,386 n.a                440 -71.3                566           -3,010 n.a
PAT                507           -4,532 n.a             1,019 -50.2             1,526           -5,472 n.a
Adjustment                    –                      –                      –                      –                      –                      –                      –                      –  
Adjusted PAT                507           -4,532 n.a             1,019 -50.2             1,526           -5,472 n.a
No. of Equity Shares (In Crs)                460                307 n.a                460 0.0                460                307 n.a
Adj. EPS (INR) 1.1             -14.7 n.a                 2.2 -50.2                 3.3             -17.8 n.a
Ratio
Cost-Income Ratio 45.4% 50.0% -460 bps 44.0% 144 bps 44.7% 43.0% 176 bps
Yield on IEA 7.2% 6.9% 24 bps 7.4% -23 bps 7.1% 7.1% -4 bps
Cost of funds 5.0% 4.8% 19 bps 5.2% -17 bps 5.0% 4.9% 15 bps
Spread 2.1% 2.1% 5 bps 2.2% -6 bps 2.1% 2.3% -18 bps
NIM 2.3% 2.2% 7 bps 2.3% -4 bps 2.3% 2.4% -17 bps
ROA 0.2% -2.3% n.a 50.0% n.a n.a
Balance Sheet
Advances       4,74,085       4,73,517 0.1       5,06,194 -6.3       4,74,085       4,73,517 0.1
Deposits       6,95,782       6,49,726 7.1       6,72,471 3.5       6,95,782       6,49,726 7.1
CASA 42.1% 41.2% 90 bps 42.4% -28 bps 42.1% 41.2% 90 bps
Asset Quality
Amount of Gross NPA          79,458          81,251 -2.2          77,267 2.8          79,458          81,251 -2.2
Amount of Net NPA          32,659          38,279 -14.7          30,180 8.2          32,659          38,279 -14.7
% of Gross NPAs 16.8% 17.2% -40 bps 16.49% 27 bps 16.8% 17.2% -40 bps
% of Net NPAs 7.7% 8.9% -125 bps 7.17% 48 bps 7.7% 8.9% -125 bps
Provision Coverage Ratio 58.9% 52.9% 601 bps 60.9% -204 bps 58.9% 52.9% 601 bps

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