Punjab National Bank announced its Q1FY2010 results on 29 July 2009, delivering 62% y-o-y growth in net profits to Rs832 crore (Rs512cr), substantially ahead of expectations on account of large treasury gains, apart from healthy operating performance.
While the bank’s deposit growth was reasonably robust at 4.4% sequentially and 26.5% y-o-y, unlike the peers its growth in advances also remained strong at 38% y-o-y.
In spite of being at the forefront of PLR cuts, the bank posted a healthy growth in Net Interest Income (NII) of 29% y-o-y.
Other Income surged 113% y-o-y, driven by strong treasury gains of Rs355 crore during the quarter in line with industry trends, even as Fee income was also robust at 45% y-o-y, on the back of strong balance sheet growth.
Operating expenses were higher than expected on account of Rs150 crore of provisions for imminent wage hikes.
Gross and Net NPA ratios remained stable sequentially at 1.8% and 0.2%, with the bank not adopting the guidelines of treating floating provisions as part of tier 2 capital instead of adjusting against NPAs on express permission from the RBI.
Otherwise, the bank’s Provision coverage would have come down from 90% to 52%. Further details were not yet available from the management.
We believe PNB is amongst the more profitable and competitive PSBs, with relatively strong Earnings growth and RoE prospects. We have a positive outlook on the Bank due to its superior CASA ratio and high core income component in Earnings.
We believe the bank’s core competitiveness in retail deposits is underpinned by the relatively high concentration of its business in relatively underpenetrated rural areas especially in North India and we have a positive outlook on its aggressive medium-term growth thrust in these areas.
At CMP, the stock is trading at 6x FY2011E EPS and 1.2x FY2011E Adjusted Book Value.
We maintain an ACCUMULATE rating on the stock, with a 12-month target price of Rs780, implying an upside of 4%.