Punjab National Bank Ltd Q2FY20 Result – Non-Interest income growth led to in-line Net revenue; Higher than expected deterioration in asset quality
· 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.
· 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.
At the CMP of INR 65, stock is trading at 0.7x FY21 ABV
|Net interest income||4,264||3,974||7.3||4,141||3.0||8,405||8,666||-3.0|
|Provisions and Contingencies||2,929||9,758||-70.0||2,023||44.8||4,952||15,516||-68.1|
|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|
|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|
|CASA||42.1%||41.2%||90 bps||42.4%||-28 bps||42.1%||41.2%||90 bps|
|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|