PNB

Sell PNB Future; target of Rs 870

Punjab National Bank (PNB) on the daily chart has been forming descending triangle with immediate support placed at Rs911. A break below the support will ensure acceleration of downward momentum in the near term. Mean while the daily MACD has generated fresh sell signal below the reference line which supports selling argument in the counter. The short term resistance for the counter is placed at Rs930 which acts as important pivot for the down trend. We recommend going short on PNB Apr Futures below Rs911 with stop loss of Rs931.5 for Target of Rs870. (Duration 7 days). 

Accumulate PNB; target Rs 1,059

For 3QFY2012, PNB registered a very moderate set of results with net profit growing by 5.5% yoy to Rs 11.5 billion, which was below our estimates on account of higher provisioning expenses than estimated by us. Net interest income of the bank grew by 10.4% yoy to Rs 35.37 billion. Non interest income growth was moderate at 10.6% yoy to Rs 9.54 billion. Provisioning expenses increased by 32.5% yoy to Rs 9.46 billion, leading to moderate PAT growth of 5.5% yoy.

The bank`s asset quality deteriorated during 3QFY2012, with gross and net NPA levels increasing by 25.1% and 38.9% sequentially, respectively. As of 3QFY2012, gross NPA ratio stands at 2.4% (2.1% in 2QFY2012), while net NPA ratio stands at 1.1% (0.8% in 2QFY2012). Provisioning coverage ratio deteriorated by 507bp during 3QFY2012 to 70.0%.

Valuation:

We recommend Accumulate on the stock with a target price of Rs 1,059.

Sell Punjab National Bank Feb future; target Rs 870

.The recent upmove in Punjab National Bank (PNB) has landed stock into extreme overbought position with stock stretching far beyond its breakout point of Rs 861. With daily stochastic indicating a negative divergence and RSI entering near 70 zone, possibility of sharp correction remains very likely. An opening below 50% of Fridays black candle would confirm a trend reversal which could take stock near Rs 860. We recommend going short on PNB Feb Futures below Rs 911 with stop loss of Rs 931 for target of Rs 870. (Duration 7 days

Buy Punjab National Bank; target Rs 875

Punjab National Bank (PNB), the steep decline from the August'11 highs of Rs 1,200 levels halted with a formation of a Bullish Inverted Head & Shoulder Pattern. The counter has given a bullish breakout from the Head & Shoulder pattern with a big white candle which is a bullish signal. The RSI has observed a positive divergence pattern and has recently breached its December'11 highs; it is currently on the verge of breaking the descending trend line drawn from the July'11 highs which would further confirm a trend reversal. The prices are likely to face resistance in the medium term around the falling resistance line and 50 sma which stands at Rs 870 & Rs 890 levels respectively. A successful break above these levels the prices are likely to test the 38.2% retracement levels which is also the pattern target.

BUY PNB at CMP Rs 838; Stop Loss: Rs 828; Targets: Rs 862; Rs 875 (Short Term 2-3 days) & Rs 890; Rs 920 (Medium Term Holding Period 2 weeks.).

Accumulate PNB; target of Rs 1,000

High ROAs despite high credit costs:

High margins and fee income provides strong top-line resilience and higher ability to absorb delinquencies and credit costs. Despite 105bps of credit costs in FY13, we expect ROAs of 1.25% which is highest among PSUs. Asset quality challenges do remain with high share of Infra and stress exposures; however, ability to maintain high ROAs with relatively high credit costs assumptions is positive.

Exposure to Infra and stress sectors high:

PNB`s 9% exposure to power remains highest among large PSU banks. Also, its exposure to other stress sectors excluding Infra, remains among the highest among large PSUs and we believe this would continue to impact investor sentiments. Our sensitivity analysis on stress exposures shows a 19% impact on PNB`s networth which is the highest among large PSUs.

Possible upsides'

Despite the high risk exposure, our positive bias is because of PNB`s ability to absorb higher credit costs relative to peers. Management has always been conservative in recognizing and providing for NPAs also reflected in relatively low slippages in Q2FY12, when PNB migrated to system-based NPA recognition. Also, management efforts on recoveries and upgrades have led to significant improvement over H1FY12 and sustaining the current trend would be a positive catalyst.

Accumulate, PT-Rs 1,000/ share:

Our Sep-12 PT of Rs 1,000/ share based on two stage Gordon growth model implies 13% upside from current levels. Current stock price implies 1.1x Sep-12 book. Despite a positive bias on PNB`s ability to relatively maintain higher ROAs, we have an `Accumulate` rating as our sensitivity analysis on stress sectors and Infra exposures indicate higher impact on PNB. We prefer Private banks v/s PNB/BOB, given better visibility on near term asset quality.

Buy Punjab National Bank; target Rs 1,050

The management has suggested slowing economy and high interest rate environment may lead to a deceleration in the pace of credit growth to 16% for the industry by FY12E. It has guided moderate credit growth of 18% for PNB by FY12E compared to 30% for FY11.

Outstanding restructured assets at 6% of advances:

In the Q2FY12 investor presentation, PNB had reported total restructured assets to date worth Rs 199.66 billion. However, the management has later presented that outstanding restructured assets stood at Rs149.95 billion (6% of advances), which is an appropriate measure. Power (SEB exposure worth Rs78 billion), aviation and small steel companies are the major sectors, which are under stress. In line with the management, we expect the GNPA ratio at 2.03% and NNPA ratio at 0.89% for FY12E.

Valuation:

Strong NIM of >3.5% coupled with other income results in healthy net profits enabling PNB to make adequate provisions for slippages. We expect RoE and RoA at 21.3% and 1.2%, respectively, for FY13E. CAR for the bank stands at 12.2% with the Tier I ratio at 8.4%. It expects Rs10 billion from government by FY12E, not factored in our estimates and value the bank at 1.2x FY13E ABV maintaining our target price of Rs1,050.

Buy PNB; target of Rs 1250

State- run lender Punjab National Bank (PNB) has posted Rs. 12.1 bn net profit in Q2FY12, registering a rise of 12% on YoY basis (up 9% QoQ)- inline with our estimate. Its NII grew 16% YoY (up 11% QoQ) to Rs. 34.5 bn in Q2FY12 – higher than our estimate of Rs. 32.4 bn. The Bank’s Non- Interest Income rose 24% YoY (down 18% QoQ) to Rs. 8.9 bn, while its operating profit grew 20% YoY (down 2% QoQ) to Rs. 25.3 bn in Q2FY12 – higher than our estimate of Rs. 23.2 bn. The Bank’s NIM improved by 11 bps QoQ, and continued to remain healthy at 3.95% in the reporting quarter. Its provisions and contingencies were high due to higher provisions for restructured loans and investment depreciation owing to increasing G-sec yields.

The Bank’s total business grew 22.5% YoY (up 4.2% QoQ) to Rs. 5.9 trillion in Q2FY12. Its advances grew 19.3% YoY (up 2.5% QoQ) to Rs. 2.5 trillion, while deposits rose 25% YoY (up 5.5% QoQ) to Rs. 3.42 trillion in Q2FY12. While the Bank’s CASA deposits rose 11.7% YoY (up 2.3% QoQ) to Rs. 1.24 trillion, its CASA share remained stable at 37.1% in Q2FY12. The Bank’s NIM improved by 11 bps sequentially to 3.95% in Q2FY12, as yield on funds increased by 31 bps to 9.01% and lesser increase in cost of funds by 10 bps to 5.54%. Its Management has given a conservative guidance for NIM of 3.5% for FY12E. The Bank’s Non- Interest Income rose 24% YoY (down 18% QoQ) to Rs. 8.9 bn in Q2FY12. The growth in fee income continued to remain healthy at 25% YoY to Rs. 6.9 bn, although 13% QoQ decline reflects seasonal factor, as the Bank charges the entire processing fee in the first quarter for the whole year. Its treasury income rose 39% YoY (up 10% QoQ) to Rs. 530 mn in Q2FY12.

During the quarter under review, the Bank’s performance was in- line with our expectation. Its NII growth continued to be healthy backed by improving margins and strong loan growth. Slippages continued to remain high due to adopting system- based NPA identification. Though the Bank restructured loans worth Rs. 45 bn reflecting stress on the asset quality, its core operating performance remained strong and NIM showed improvement sequentially. During the quarter, Bank’s provisions were high on account of provisions made for restructured loans and provision for investment depreciation. While maintaining our earnings estimates for FY12E & FY13E, respectively we have retained our target price of Rs. 1250 per share at 1.39x FY13E adjusted book value, and continue to maintain our ‘BUY’ recommendation on the stock

Accumulate Punjab National Bank; target Rs 1,085

For 2QFY2012, Punjab National Bank posted modest 12.1% yoy growth in its net profit to Rs 12.05 billion, well ahead of our estimates of Rs 10.33 billion on account of considerably better-than-expected NII and lower-than-expected provisioning expenses. Sequential improvement in NIM coupled with slippages remaining under check in spite of completion of migration to system-based NPA recognition platform were the key positive takeaways from the results. However, restructuring of advances was considerably higher.

Sequential expansion in NIM; lower slippages but considerably higher restructuring: For 2QFY2012, the bank`s business momentum remained moderate, with advances growing by 19.3% yoy (up 2.5% qoq) and deposits increasing by 25.0% yoy (5.5% qoq). With the persistence of higher interest rates on fixed deposits, growth in CASA deposits moderated further to 11.7% yoy, as has been witnessed across almost all banks. Consequently, reported CASA ratio declined by 100bp qoq and sharply by 420bp yoy to 37.1%. In spite of the decline in CASA balances, reported NIM of the bank improved by 11bp qoq to 4.0%, on the back of a 54bp increase in yield on advances. Consequently, the bank registered reasonable 16.0% growth in NII, 9% above our estimates. Fee income growth was muted as fresh loans declined considerably on a yoy basis. On the asset-quality front, the bank surprised positively with slippages rate declining further to 1.6% from 1.9% witnessed in 1QFY2012, in spite of the completion of migration to system-based NPA recognition platform. However, the bank restructured loans of Rs 40 billion during the quarter (Rs 45.63 billion in 1HFY2012), which were considerably higher than the run-rate witnessed over the past few quarters. More than half of the restructured loans pertained to the power sector, including Rs 17.5 billion restructuring done for loan to Tamil Nadu State Electricity Board. Gross and net NPA ratios remained largely flat sequentially at 2.1% and 0.8%, respectively. Provision coverage ratio (including technical write-offs) was at healthy 75.1% levels. The bank made Rs 1.1 billion higher than required provisions for investment depreciation considering the sharp spike in G-Sec yields post September 30, 2011.

At the CMP, the stock is trading at 1.2x FY2013E ABV vs. its five-year range of 1.1-1.6x and median of 1.4x. We maintain our Accumulate recommendation on the stock with a target price of Rs 1,085.

Buy Punjab National Bank; target Rs 1,310

"Punjab National Bank (PNB) posted PAT growth of 12% YoY in 2QFY12 to Rs 12 billion (v/s our estimate of Rs 12.6 billion). While operating profit was 8% above our estimate, higher than expected provisions led to lower PAT.

Gross slippages during the quarter were Rs 9.9 billion v/s Rs 11.8 billion in 1QFY12. Lower slippages despite full migration to system-based NPA accounting was a positive surprise. Traction in recoveries and up gradations remained impressive. During the quarter, recoveries and up gradations were Rs 7.2 billion v/s Rs 6.5 billion in 1QFY12 and Rs 3.7 billion in 2QFY11.

During 2QFY12, PNB restructured loans worth ~Rs 41 billion (164 bp of loans - a negative surprise), of which Rs 21.5 billion was on account of power sector (includes Rs 17.5 billion pertaining to TNSEB), Rs 6.4 billion was towards the drilling segment (one large account) and Rs 6.1 billion was towards the iron and steel segment (7-8 accounts).

Reported NIM improved 11 bp QoQ to 3.95%, despite 200 bp compression in CD ratio and 100bp decline in CASA ratio. While yield on loans improved 54bp QoQ, cost of deposits was up just 24 bp QoQ, leading to margin expansion.

In 2QFY12, PNB provided Rs 3.2 billion towards NPA, Rs 1.6 billion towards investment depreciation to proactively build in cushion against rising G-Sec yields. PNB is now protected up to a yield of 8.6% (current yield: 8.9%). Additional provision of Rs 790 million was on account of restructured loans.



Valuation: We expect RoA to remain strong at 1.3% and RoE at ~24% over FY12/13. PNB should report earnings CAGR of 20% over FY11-13. BV is likely to be Rs 771 in FY12 and Rs 936 in FY13. The stock trades at 1.3x FY12E and 1.1x FY13E BV. Maintain `Buy`.

Buy Punjab National Bank; target Rs 1,300

NII growth at 16.0%, slightly better than our expectations mainly aided by better than expected NIM (3.95% during Q2FY12; 11 bps QoQ improvement) along with 19.3% growth in loan book. Similarly, net profit growth (12.1% YoY) surprised positively on back of lower loan loss provisions (Rs 3.19 billion; down 43.6% QoQ).

Core fee-based income witnessed healthy growth of 26.9% while `Recovery from W/O A/Cs` and `Dividend income from MF` continued to aid healthy growth in overall non-interest income. NIM during Q2FY12 came at 3.95%, higher than our expectations mainly on the back of 54bps improvement in yield on advances, while cost of funds rose by only 10 bps. We are a bit conservative and have modeled NIM at 3.65% and 3.42% during FY12E and FY13E, respectively.

Although reported slippage (1.64% annualized) may look slightly on higher side, it came lower than the average run rate of previous 4 quarters (2.16% annualized). However, cumulative restructured book now stands at Rs 199.7 billion (~8.0% of loan book), which is higher than the industry average.

Asset quality remained stable QoQ with gross NPA and net NPA coming at 2.05% and 0.84%, respectively. In absolute terms, gross NPA rose by 5.2% QoQ as bank completely shifted to system based NPA recognition system (loans >1.0 million migrated during Q2FY12). Their coverage ratio is also healthy at 75.1% at the end of Q2FY12.

At CMP of Rs 1,013, the stock is trading at 5.3x its FY13E earnings and 1.2x its FY13E ABV. Although we like its positioning strategy of a dominant player in the Indo-Gangetic belt as well its strong liability franchise, we opine ~10% of stressed assets (restructured book + gross NPA) is likely to be an overhang on the stock, going forward. We have cut the TP to Rs 1,300 (Rs 1,400 earlier) but maintain BUY rating on the stock; at TP stock would trade at 1.5x FY13E adjusted book value.

Valuation & recommendation

At CMP of Rs 1,013, the stock is trading reasonable at 5.3x its FY13E earnings and 1.2x its FY13E ABV. We are modeling earnings to grow 16.5% CAGR during FY11- 13E, while return profile is also expected to remain healthy (FY13E - RoA: 1.3%, RoE: 21.7%) during next two years.

Although we like its positioning strategy of a dominant player in the Indo-Gangetic belt as well its strong liability franchise, we opine ~10% of stressed assets (restructured book + gross NPA) is likely to be an overhang on the stock, going forward.

We have cut the TP and maintain BUY rating on the stock with revised TP of Rs 1,300 (Rs 1,400 earlier) based on P/ABV of 1.5x its FY12E adjusted book value.

Accumulate Punjab National Bank; target Rs 1,270

PNB`s Q2FY12 results were significantly ahead of our/street estimates with NII at Rs 34.5 billion (up 16% yoy) and PAT at Rs 12 billion (up 12.1% yoy). NII growth was aided by well-diversified loan mix and improved yields.

Non-instinct too came in higher at Rs 8.9 billion (up 24% yoy). With lower than expected slippages and improved cash recoveries and up-gradation, GNPA grew by mere 5% qoq. This is commendable as all loans below Rs 1 million were migrated to system based NPA recognition during Q2.

Loan portfolio expanded 2.5% qoq with growth witnessed across all segments of credit. Resultant, margins expanded 11 bps qoq to 3.95%. On the deposit front, CASA deposits grew 4.6% qoq. However, CASA ratio eased by 430 bps yoy to 36.3% (37.1% if calculated only on domestic deposits).

PNB`s Q2FY12 NIM at 3.95% was up 11 bps qoq. Despite volatile interest rate regime, margins for PNB have held up in a narrow range of 3.8%-4.1% for past several quarters. This has been on the back of a) regular lending rate hikes b) well-diversified loan mix and c) strong core deposit franchise.

During the quarter, despite 200 bps qoq contraction in LDR, NIM improved 11 bps qoq largely due to improved yields on advances (up 54 bps qoq) and on investments (up 13 bps qoq) and broad based loan growth. NIM expansion was also aided by 75 bps increase in base rate implemented in August 2011. Cost of deposits was up by 24 bps qoq.

Loan portfolio expanded 2.5% qoq with growth witnessed across segments of - retail (up 2.4% qoq), agri (up 2.7% qoq) and SME (up 5.8% qoq) and large corporates including others (up 1.4% qoq). Amongst large industries, exposures were - metals Rs 1,38 billion (5.5% of total loan portfolio), infrastructure at Rs 362 billion (14.5%) and ower Rs 155 billion (6.2%).

Valuation:

Three issues have clearly dragged PNB`s financial and stock performance over past few quarters - (1) exposure to sensitive sectors like CRE and power (2) high slippage rates and consequent credit costs and (3) risks to margins due to it being the highest amongst PSU banks. Clearly the NIM performance during the quarter and the ability to push up recoveries and upgradation rates put the later two concerns to the rest. Amongst the power sector exposure, 50% of the exposure is to SEBs and central government utilities and 50% (2.9% of loan book) to the private entities. We have now factored marginally lower credit cost (avg 81bps over FY11-13E). Valuations at 1.4x FY12E/1.1x FY13E ABV appear reasonable given superior return ratios, strong CASA franchise, stable NIM and fading risk of asset quality deterioration. Retain `Accumulate` rating on the stock with price target of Rs 1,270.

Accumulate Punjab National Bank; target Rs 1,235

For 1QFY2012, Punjab National Bank  (PNB) posted moderate net profit growth of 3.4% yoy to Rs 11.05 billion, in-line with our estimate of Rs 11 billion and marginally below street`s expectations. However, the bank`s NIM and asset quality surprised positively with reported NIM declining by just 7 bp qoq and quarterly annualised slippage ratio falling to sub-2% levels for the first time in the last seven quarters.



For 1QFY2012, the bank`s business momentum moderated in-line with peers. However, business growth remained ahead of industry with advances growing by 23.4% yoy (up 0.3% qoq) and deposits increasing by 26.9% yoy (3.6% qoq). Growth in CASA deposits moderated further to 16.9% yoy, as has been witnessed across almost all banks.

Reported CASA ratio declined by 110 bp qoq to 38.1%. NIM held up well as compared to peers, with a decline of just 7 bp qoq to 3.8% on the back of a 55 bp qoq rise in yield on advances, which largely offset the 64 bp qoq increase in cost of deposits. Core fee income growth was healthy at 27.3% yoy, even recoveries from written-off accounts rose by healthy 43.1% yoy.

On the asset quality front, the bank surprised positively with slippages rate declining to sub-2% levels in spite of switchover to system-based NPA recognition system for accounts above Rs 10lakhs (the bank had migrated accounts above Rs 50 lakhs in 4QFY2011 itself). Provision coverage ratio (including technical write-offs) improved by 100 bp qoq to 74.3%. Capital adequacy remained healthy at 12.4%, with tier-I CAR of 8.5% (including 1QFY2012 profits at 9.0%).

At the CMP, the stock is trading at 1.3x FY2013E ABV. We maintain our `Accumulate` recommendation on the stock, owing to attractive valuations, with a target price of Rs 1,235.

Buy Punjab National Bank; target Rs 1,400

NII growth at 19.0%, slightly better than expectations mainly aided by better than expected NIM (3.84% during Q1FY12; decline of only 7 bps both YoY as well as QoQ) along with 23.4% growth in loan book. However, net profit growth was moderate at 3.4% (Rs.11.05 billion) due to higher provisions (67.3% growth YoY) on back of Rs.3.89 billion additional provisions to meet revised RBI guidelines.

Robust growth in core non-interest income (24.3% YoY); strong recovery from written-off A/Cs and dividend income from MF aided healthy overall other income growth despite lower trading profit. NIM came at 3.84% during Q1FY12 higher than our expectations, contracting by only 7 bps YoY as well as QoQ, on back of better liability management. We are modeling 3.5% NIM for FY12E.

Although reported slippage (1.94% annualized) is slightly on higher side, it came lower than the average run rate of previous 4 quarters (2.32% annualized). Cumulative restructured book stands at Rs.158.8 bn (6.5% of loan book), which is again higher than the industry average.

Gross NPA rose 11.7% QoQ in absolute terms as Bank shifted to system based NPA recognition system for loans more than 1.0 mn. However, net NPA grew only marginally at 2.6% QoQ. In percentage terms, they stand at 2.0% and 0.86%, respectively with coverage ratio also at healthy (74.3%) at the end of Q1FY12.

At CMP of Rs. 1,100, the stock is trading reasonable at 6.8x its FY12E earnings and 1.6x ts FY12E ABV. We are maintaining BUY rating on the stock with revised target Price of Rs. 1,400 (Rs.1,415 earlier) based on P/ABV of 2.0x its FY12E adjusted book value.

Buy PNB; target Rs 1500

Punjab National Bank (PNB) reported 3.4% YoY growth in PAT for 1QFY12 to INR11.1b - 2% higher than our estimate of INR10.8b. NIM decline of just 8bp QoQ despite higher proportion of savings (30%) deposits is a positive surprise, especially considering the results reported by peers. Gross slippages were INR11.8b in 1QFY12 v/s INR12.5b in 4QFY11. The annualized slippage ratio for 1QFY12 stood at 1.94% v/s 2.7% in 4QFY11 and 2.32% for FY11. Strong recoveries and upgradations during the quarter came as a positive surprise (INR6.5b v/s INR4b a quarter ago and INR5.4b a year ago). During the quarter, PNB restructured loans worth INR5.6b (~25bp of total loans). Gross restructured loans stood at 6.5% of total loans v/s 6.3% a quarter ago. Of the restructured loans, INR2.83b slipped during the quarter. Robust fee income growth of over 25% YoY during the quarter was a positive surprise. Trading profits were lower at INR480m v/s INR530m a quarter ago and INR1.2b a year ago. Higher opex surprised negatively (19% higher than our estimate). Retirement benefit related provisions and strong branch expansion (opened 125 branches during the quarter) resulted in higher opex.

Over the last two years, the management has consistently surprised on the margin front (despite higher slippages), demonstrating the strong ALM and benefit of high CASA ratio. The margin performance should be viewed in the context of the numbers delivered by peer banks - over 25bp+ QoQ NIM decline. We expect recoveries and upgradations to pick up after high slippages in the last two years. High NIM and increase in fee income to provide cushion against higher credit cost. The management reiterated its guidance of 3.5%+ NIM and ~2% GNPA. We expect RoA to remain strong at 1.3% and RoE at 24%. PNB remains one of our preferred picks among state-owned banks. Buy for a target price of Rs 1500.

Buy Punjab National Bank; target Rs 1,410

Punjab National Bank (PNB) reported a strong set of numbers for Q1FY2012 as net profits grew 3.4% year on year (YoY) to Rs 11.05 billion despite making a one off provision of Rs 3.89 billion (as per revised provisioning norms) and lower treasury profits. This was driven by a strong growth in net interest income (NII) which grew 19% YoY and 2.9% quarter on quarter (QoQ). The margins remained steady at 3.84% and showed a marginal decline of 7 bps QoQ. The asset quality deteriorated as gross non performing assets (NPAs) increased to 2% compared to 1.79% in Q4FY2011. We estimate PNB`s (Q,N,C,F)* earnings to grow at a compounded annual growth rate (CAGR) of 19% over FY2011-13 led by a 22% CAGR growth in advances. We maintain our `Buy` rating with a price target of Rs 1,410 (1.5x FY2013E book value [BV]).

The NII increased by 19% YoY and 3% QoQ , in line with our estimates. The growth in NII was driven by steady margins and a healthy growth in advances. During Q1FY2012 the advances growth remained flat on a sequential basis while it increased by 23.4% YoY driven by small and medium enterprise (SME; +36% YoY), retail (+24% YoY) and overseas advances (+77% YoY). We have assumed an advances growth of 22% CAGR over FY2011-13.

Unlike other public sector unit (PSU) banks, PNB`s net interest margin reported a marginal decline of 7bps QoQ to 3.84%. This was driven by a 55 bps QoQ increase in yields on advances to 11.4% which offset the 64 bps increase in the cost of deposits. The reported yield on investment also went up by 55 bps QoQ due to shifting of investments towards longer dated securities. Due to rising cost pressures and shifting to higher rated advances the bank expects to maintain its net interest margin (NIM) at 3.5% levels.

The overall non interest income increased by 24.3% YoY despite lower treasury profits (Rs 480 million vs Rs 1.21 billion in Q1FY2011). This was on account of a strong growth in fee income and higher recovery from written off accounts (Rs 1.09 billion vs Rs76 crore in Q1FY2011). The core fee income growth during the quarter was 25% YoY and 6% QoQ.

The gross NPAs and net NPAs increased to 2% and 0.88% respectively compared to 1.79% and 0.85% in Q4FY2011. The bank reported slippages of Rs 11.77 billion (2% annualised) while recoveries were to the tune of Rs 6.63 billion. The bank made Rs 3.89 billion of one off provisions (Rs 2.43 billion for NPAs and Rs 1.46 billion for standard advances) based on revised Income Recognition Asset Classification (IRAC) norms. During the quarter Rs 5.12 billion of advances were restructured while outstanding restructured loans were 6.3% of advances. The bank maintained its guidance to hold NPAs at around 2% levels.

The employee expenses surged sequentially (despite a high base) by 7% mainly contributed by the pension provisions of Rs 2.6 billion (excluding Rs 1.66 billion on second pension liability). Consequently, the cost to income ratio increased to 41.8% from 39.9% in Q4FY2011.

The bank has finalised Metlife as its insurance partner and will acquire a 30% stake in the company. The bank is likely to acquire a stake via issue of fresh equity shares in the insurance company. According to the management the capital infusion in MetLife is largely over and it would help the bank in increasing its fee income.

Valuations: PNB delivered a superior performance in Q1FY2012 led by healthy core performance. The margins remained steady despite pressures while fee income showed strong growth. In view of slower credit volumes, likely compression in margins and higher credit cost we have slightly trimmed our FY2012 and FY2013 estimates. We expect PNB`s earnings to grow at a CAGR of 19% over FY2011-13, leading to a return on equity (RoE) of around 22%. We maintain our `Buy` rating with a price target of Rs 1,410.

Accumulate Punjab National Bank; target Rs 1,270

NII and PAT growth in line, NIMs surprise positively:

PNB`s NII at Rs 31.2 billion (19% yoy) was in line with our estimates (Rs 30 billion). However, the NIMs surprised us positively at 3.84%. The advances were almost flat on qoq basis at Rs 2.4 tn. The operating performance was robust with growth of 31% in core operating profits. However, PNB has used the strong performance to provide for NPAs and as a result despite Rs 11.8 billion of slippages, PCR improved by 110 bps to 74.3%.

NIMs surprise positively; CDR gets comfortable at 75%:

PNB`s NIMs at 3.84% (down just 7 bps qoq) surprised us positively. Even as the cost of deposits has gone up by 64 bps qoq, a 55 bps expansion each in investment/advances yields has helped PNB to restrict the contraction in NIMs. The NIMs remained stable despite the CD ratio declining to 75%, down 250 bps qoq. PNB will be considering an increase in its base rate/BPLR in its upcoming ALCO meeting which will further help maintain NIMs.

Valuations & View:

In our previous note on the PNB dated May 4, 2011 (``Profits protected; slippages rise``) we had mentioned that a lower slippage ratio will be key driver for profits and stock performance in FY12E. We believe that with slippages coming down, the strong topline performance for PNB should reflect in its bottom line. Over FY10-11, PNB`s net income grew by 27% with net profit growing by much lower 13.5% due to provisions. We expect PNB`s net income to grow by 16.4% over FY11-13E with profit growth of 21.6% over the same period. Having already built 90 bps credit costs in our numbers, we believe that the risks to our earnings are low.

The stock is currently quoting at 1.5x FY12E ABV and 1.2x FY13E ABV with attractive RoEs of 21-23%. We find the valuations reasonable looking at strong returns profile. We maintain our `Accumulate` rating on the stock with price target of Rs 1270.

Sell PNB; target of Rs 1000

Punjab National Bank (PNB), big Bearish Belt Hold pattern formed in PNB in yesterday’s trade session indicates that the stock has resumed it downtrend after the consolidation of last few days. With prices failing to breach past the falling trend line, the short term trend continues to be negative and could lead to prices correcting lower towards Rs 1000/970 levels. Further the bearish candlestick pattern indicates that Bears are now in complete control and thus could lead to panic amongst Bulls as they try to exit from long positions. Both the daily and weekly momentum oscillators are falling confirming our bearish outlook. Sell PNB at CMP Rs 1032 for a target of Rs 1000/970 with stop placed above Rs 1065 on closing basis.

Buy Punjab National Bank; target Rs 1,331

Punjab National Bank is scheduled to announce its 4QFY2011 results. We expect the bank to report strong NII growth of 31.7% yoy and 2.7% on a sequential basis. However, the bank`s NIM is expected to compress by 10bp qoq. The operating profit of the bank is expected to register moderate growth of 5.8% yoy and 5.0% qoq. Net profit growth is expected to be marginal at around 0.8% on a yoy basis to Rs 11.44 billion. At the CMP, the stock is trading at valuations of 1.2x FY2013E ABV. We maintain our `Buy` recommendation on the stock with a target price of Rs 1,331.

Buy Punjab National Bank; target of Rs 1400

Punjab National Bank's 4QFY11 PAT grew 6% YoY to Rs 12 billion (5% higher than our estimate). While NII was lower than estimated (Rs 30.3 billion v/s our estimate of Rs 32 billion), higher than expected other income (Rs 11.5 billion v/s our estimate of Rs 8 billion) and lower opex led to higher than expected PAT growth.

Reported NIM declined 22bp QoQ to 3.9%. However, adjusted for interest of Rs 1.1 billion on IT refund in 3QFY11, NIM declined ~8bp. Despite higher slippages in FY11, margin improvement of 40bp YoY (from 3.6% to 4%) is commendable. Non-interest income was 41% higher than our estimate, led by strong recoveries from written-off accounts, higher fee income growth and dividend income from MF. Core fee income (ex-forex and income from MF) grew 30% YoY and 27% QoQ (on a lower base).

Gross slippages for the quarter stood at Rs 12.5 billion v/s Rs 10 billion in 3QFY11. Annualized slippage ratio for 4QFY11 increased further to 2.7% from 2.2% in 3QFY11. The bank resorted to aggressive write-offs (Rs 10 billion v/s Rs 2 billion in 3QFY11 and Rs 3.7 billion in 4QFY10) during the quarter, leading to 4% QoQ decline in GNPA (in absolute terms). However, NNPA increased by 29% QoQ. The bank has crystallized second pension liability of Rs 33 billion (v/s Rs 36 billion guided in 3QFY11), of which Rs 5.8 billion (~18%) is for retired employees. While the retired employees' liability has been provided during the year, the bank plans to amortize existing employees' pension liability over five years.

Despite factoring in margin moderation of 30bp+ in FY12 and fee income growth of 15%, we expect core operating profit to grow ~19%, led by strong operating leverage. We expect RoE and RoA to remain superior at ~24% and ~1.3%, respectively over FY11-13. PNB remains one of our preferred picks among state-owned banks.

Buy Punjab National Bank; target of Rs 1180-1200

Punjab National Bank (PNB), with yesterdays up move PNB has breached the triangular consolidation of last 4 weeks indicating an up move towards 1200-1225 levels. With this PNB has also breached the falling channel of last 18 months indicating that the short term trend has turned positive. Any retest of the breakout level at Rs 1105-1100 would be a low risk buying opportunity.

Weekly stochastic is rising while daily stochastic has given a positive crossover though closer to overbought levels. According to wave structure, after a five wave up move from Rs 970 to Rs 1127, prices had been consolidating in a triangular pattern post termination of which another five wave up move is likely towards 1200. Buy PNB at CMP Rs 1125 and on dips to Rs 1105 for a target of Rs 1180-1200 with stop placed below Rs 1100 on closing basis.

Buy Punjab National Bank; target of Rs 1370

Punjab National Bank (PNB)`s loan growth is set to remain robust at 25% in FY11 despite a slight moderation in Q4 FY11. In FY12, credit growth would continue to be higher than system. C/D ratio is expected to correct with deposits mobilization having improved in recent months. The bank is confident of sustaining CASA near 39% despite migration to TDs. NIMs, after being resilient in Q4 FY11, are anticipated to witness a modest correction. In the longer term, PNB sees NIM at 3.5-3.7%, a conservative band in our view.”

With YTD credit expansion at 18.6%, PNB has witnessed higher than system loan growth. The yoy credit growth for the bank in Q3 FY11 was at a robust 30%. The growth momentum is expected to decelerate to 25% in Q4 FY11 mainly due to the higher base (advances grew by significant 9.5% qoq in Q4 FY10). PNB expects system credit growth to moderate to 20-21% by the end of the year. In FY12, the bank plans to grow at least 2-3% above the system. The bank has witnessed improvement in core term deposits mobilization in recent months aided by the material rate hikes implemented. PNB expects significant increase in institutional deposits in the current month. Resultantly, the C/D ratio is expected to correct to 75% over the next 3-6 months. Despite the significant increase in TD rates, PNB is confident about maintaining CASA near 39%. Presently, bank’s CASA ratio is second only to SBI amongst PSBs.

The bank has been able to sustain CASA around 40% consistently over the past many quarters. PNB’s dominant presence in Northern India offers the bank a structural advantage over peers. To retain CASA, bank plans to add 400-450 branches in FY12. Majority of the additions would be in Western region, in Tier 3-6 cities. Over the past six months, PNB has increased BPLR by 200 bps and Base Rate by 150 bps. As a significant portion of these increases was announced in December and January, the reported YoA was flat qoq in Q3 FY11. It is expected to improve by 15-20bps in Q4 FY11. About 81% of the bank’s advances are floating - 59% linked to BPLR and 22% linked to Base Rate – and therefore get immediately re-priced.

Over FY10-13, we estimate PNB to witness robust 24% balance sheet CAGR, 27% NII CAGR and 20% PAT CAGR. Bank’s current valuation of 1.2x FY13 P/adj.BV is attractive given its superior return profile. Any sign of stabilization in the bank’s asset quality is likely to result in a significant re-rating of the stock. Using our proprietary valuation model for banks, Bank 20, we assign FY13 P/adj.BV multiple of 1.5x to PNB and arrive at 9-month price target of Rs 1370.

Buy Punjab National Bank; target of Rs 1,450

Q3FY11 results: Strong core operating performance, slightly ahead of our expectations; however, net profit grew moderately on back of higher opex & NPA provisions. Higher slippage (2.09% annualized) remains a cause of concern for us. We maintain Buy on the stock.

The bank`s net interest income (NII) grew 37.5% in Q3FY11 on back of strong loan growth (29.8% YoY) along with 49 bps improvements in NIM from 3.64% in Q3FY10 to 4.13% in Q3FY11.

Its net profit growth was moderate at 7.8% during Q3FY11 mainly due to higher operating expenses (37.7% YoY) and higher loan loss provisions (Rs 5.55 bilion in Q3FY11 as against Rs 3.28 bn in Q3FY10), despite of strong NII growth (37.5%).

NIM improved both YoY as well as QoQ to 4.13% in Q3FY11 from 3.64% in Q3FY10 and 4.06% in Q2FY11 on back of better liability management and improvement in C/D ratio (76.6% at the end of Q3FY11 vs. 72.8% at the end of Q3FY10).

Slippage was slightly higher at Rs 9.77 billion (annualized slippage ratio: 2.09%) during Q3FY11, which remains a cause of concern for us. Cumulative restructured book stands at Rs 143.6 billion (6.5% of advances); out of this Rs 12.55 billion (8.7%) has slipped into NPA.

Gross NPA and net NPA deteriorated both YoY as well as QoQ; they rose in absolute terms by 12.8% and 10.5%, respectively. Now, gross NPA and net NPA stand at 2.03% and 0.72%, respectively.

We have slightly tweaked our earning estimates for FY11E & FY12E and maintain Buy rating on the stock with unchanged target price of Rs 1,450 based on P/ABV of 2.0x its FY12E adjusted book value. 

Accumulate PNB; target of Rs 1259

Punjab National Bank (PNB) posted moderate net profit growth of 1.4% qoq and 7.8% yoy to Rs 1,090 crore (for 3QFY2011), in line with our estimates of Rs 1,100 crore. However, the bank reported higher provisioning expenses, over 30% above estimates, which were offset by higher non-interest income.

During the quarter, advances grew by 6.0% qoq (29.8% yoy) to Rs 221,252 crore, while deposits grew by 5.7% qoq (23.5% yoy) to Rs 288,873 crore. Asset quality continued to be under pressure, with gross NPAs rising by 12.8% qoq and net NPAs increasing by 10.5% qoq. On a qoq basis, the annualised slippage ratio increased by 14bp to 2.1%.

The CASA ratio dropped to 39.1% from 40.6% in 2QFY2011. Yield on funds increased by 10bp qoq to 8.25%, aided by the 100bp increase in base rate, which was higher-than-peer average of ~70bp, while the cost of funds increased by 15bp sequentially to 4.54%.

Reported NIMs expanded by 7bp sequentially to 4.13%. Consequently, NII increased by 7.6% sequentially to Rs 3,203 crore (a healthy 37.5% increase yoy). The non-interest income increased by 17.4% yoy to Rs 857 crore, despite a 44.6% reduction in treasury gains. Operating expenses increased substantially by 7.3% qoq and 37.7% yoy, led by the 46.9% yoy increase in employee costs and 19.0% yoy increase in other operating expenses. Post the recent correction in the stock, it is trading at 1.5x FY2012E ABV of Rs 741 v/s its five-year range of 1.1-1.6x and median of 1.4x. We recommend an Accumulate rating on the stock with a target price of Rs 1,259 (earlier Rs 1,341), valuing it at a multiple at 1.7x FY2012E ABV.

Accumulate on PNB; target 1,341

Punjab National Bank (PNB), which achieved total business of Rs 5,000 billion till December 31, 2010, is targeting business worth Rs 10,000 billion by CY2013. Over FY2006-10, the bank`s business posted a 22.4% CAGR compared to industry`s growth of 20.9% CAGR over the same period. Post the recent correction, at the CMP of Rs 1,171, the stock is trading at 1.6x FY2012E ABV of Rs 745. We maintain our Accumulate recommendation on the stock with a Target Price of Rs 1,341.

Buy Punjab National Bank; target of Rs 1260

Punjab National Bank (PNB) after hitting an 52 week high of Rs 1400 in November 2010, the stock had seen a sharp fall to the support of its 200-DMA (Rs 1126). From which the stock has seen a smart recovery without the re-test of its earlier low. Trend line breakout is seen in the daily chart where prices successfully traded above the falling resistance line with positive crossover in RSI. Based on the hourly chart, the stock has also seen a breakout from a Symmetrical Triangle pattern. Such back to back confirmation of on the hourly and daily charts is likely to ignite buying momentum with immediate target seen above Rs 1270. We advise buying the stock above Rs 1220 with stop loss of Rs 1200 for target of Rs 1260.

Buy Punjab National Bank; target of Rs 1,450

We have slightly tweaked our earning estimates for FY11E and FY12E and now expect net profit for FY11E and FY12E to be Rs 44.94 billion and 53.73 billion, respectively.

This would result into an EPS of Rs 142.5 and Rs 170.4 for FY11E and FY12E, respectively.

The ABV is forecast at Rs 581.7 and Rs 721.2 respectively for FY11E & FY12E.

At the current market price of Rs 1,274, the stock is trading at 7.5x its FY12E earnings and 1.8x its FY12E ABV. We like the bank`s strategy of positioning itself as a dominant player in the Indo-Gangetic belt. It is also better placed than its peers in rising interest rate environment with its strong liability franchise (CASA mix at 41%) along with lower dependence on wholesale deposits.

We are upgrading the stock to Buy from Accumulate earlier with the revised TP of Rs 1,450 (Rs 1,400 earlier) on back of recent price correction. At target price, stock would trade at 2.0x its FY12E adjusted book value.

 

Angel Broking neutral on Punjab National Bank

Punjab National Bank (PNB) reported net profit growth of 15.9% yoy to Rs 1,075 crore for 2QFY2011, slightly above our estimate of Rs 1007 crore on account of higher-than-expected NIMs and lower provisioning on the NPA front. At current levels, the stock is trading at ~9% above the upper-end of its historical range and in our view, does not offer sufficient margin of safety from the negative surprises that could arise on the asset quality front in the near term. Hence, we remain Neutral on the stock.

During 2QFY2011, advances grew 27.6% yoy (6.0% qoq) driven by the 45.9%, 32.7% and 29.0% yoy growth in the MSME, retail and agriculture segments, respectively. Deposits grew 18.4% yoy (7.1% qoq). The growth in both advances and deposits was well above the industry growth rate. CASA deposits grew at a healthy 24.9% yoy, driven by a 24.3% yoy growth in current account deposits and 25.1% yoy growth in saving account deposits. The CASA ratio declined to 40.6% from 40.9% in 1QFY2011. On the back of the 27bp increase in the yield on advances, reported NIM improved by 12bp qoq to 4.06%. Consequently, NII grew by a healthy 42.1% yoy and 13.7% qoq to Rs 2,977 crore. Gross NPAs increased, in absolute terms, by 11.4% qoq to Rs 4,025 crore and net NPAs rose by 11.1% qoq to Rs 1426 crore. Gross slippages for the quarter stood at Rs 911 crore (Rs 1216 crore in 1QFY2011), indicating an annualised slippage ratio of 2.0% (2.6% in 1QFY2011).

While we believe that the bank can deliver healthy core RoEs of 18-20% due to its strong legacy, actual RoEs are unsustainably high at 26.6%. On the valuation front, the stock is trading at 1.74x FY2012E ABV of `741, which is expensive considering its 5-year range of 1.0-1.6x and median of 1.4x. Hence, we maintain our Neutral view on the stock.

 

Buy Punjab National Bank; target of Rs 1550

Punjab National Bank (PNB) reported in-line results for 2QFY11. Positive surprises were: (1) strong loan growth of 6% QoQ, (2) 12bp QoQ improvement in NIM, and (3) CASA growth of 25% YoY and 6% QoQ. While slippages remained high at Rs 9.1billion (1.85% annualized), they were partly offset by Rs 3.7 billion upgradations and Rs 1.3 billion write-offs. GNPAs grew 11% QoQ to Rs 40.3 billion. Key highlights:

Business growth remained strong, with loan growth of 28% YoY to Rs2.1t; deposits grew 18% YoY to Rs 2.7t. Impressive performance on CASA continues; CASA grew ~25% YoY and 6% QoQ. CASA ratio remained stable QoQ at ~41%. NIM improved 56bp YoY and 12bp QoQ to 4.06%, aided by increase in yield on loans (up 31bp QoQ) and declining cost of deposits (down 6bp QoQ). PNB provided Rs 2.5 billion towards pension and gratuity (same as in 1QFY11). Management has guided for gratuity related liability of Rs 4.8 billion (to be fully provided in FY11) and Rs 25 billion towards second pension option (may be revised depending upon the final details).

We expect PNB to post earnings CAGR of 20% over FY10-12. We expect RoE and RoA to remain superior at ~25% and ~1.4%, respectively over FY10-12. The stock trades at 1.7x FY12E BV and 7.3x FY12E EPS.



PNB has shown sustained traction in NII, backed by increasing CASA levels and healthy NIMs. The bank continues to grow in a calibrated manner, which is reflected in stable CD ratio and rising margins. While gross NPAs have increased, core operating profits are strong and would absorb the higher credit cost. While we remain optimistic on the bank's growth prospects, higher than expected provisions towards pension liability could impact profitability. We expect PNB to report earnings CAGR of 20% over FY10-12. We expect RoE and RoA to remain superior at ~25% and ~1.4%, respectively over FY10-12. The stock trades at 1.7x FY12E BV and 7.3x FY12E EPS. Maintain Buy with a target price of Rs 1550 (2x FY12E BV), upside of 18%.

 

Punjab National Bank an outperformer

Punjab National Bank (PNB) and other seven banks exposure to Zoom developers (a Mumbai based project development company) has come into light. The banks total exposure to the account is close to Rs 26 billion (non-fund based exposure) out of this PNBs (the lead banker) exposure is close to Rs 4.5 bn. In accordance with the media reporting, in Q1FY11, the bank already recognized Rs 3.0 billion as NPAs and made provisions. According to our communication with other banks managements some of the banks made provisions in Q4FY10 itself. PNB, as on end-March 2010, the banks total gross NPAs was Rs 32.1 billion (1.71% of gross advances) and increased to Rs 36.1 billion (1.82% of gross advances). Out of total exposure, Rs 3.0 billion has been recognized as NPAs and provided for in Q1FY11 but extent of provisioning is unknown. In a worst case scenario, if the bank writes-off entire exposure in FY11, EPS would decline by close to 6.5% to Rs 131 and book value would drift by close to 1.4% to Rs 613. We await complete clarity on the issue to effect the change in earning estimates and target price. We maintain our earning estimates and Out Performer rating with a target price of Rs 1562 at 2.2x adjusted book value FY12.

Buy Punjab National Bank; target Rs 1225

Punjab National Banks 1QFY11 result was in line with our estimate. While PAT grew 29% to Rs 10.7 billion, in line with estimates, NII was significantly higher (8%) than estimates. We largely maintain our earning estimates for FY11 and FY12. The stock trades at 1.4x FY12E BV and 6.1x FY12E EPS. We expect RoE and RoA to remain superior at 24% and 1.3% respectively over FY10-12. Maintain buy with a target price of Rs 1225 (1.6x FY12E BV)

Buy PNB; target of Rs 1246

In FY10, Punjab National Bank was the most efficient and profitable public bank with RoA and RoE of 1.4% and 25.5% respectively (both excluding profit from stake sales). With continuance of superior margin, credit growth and gradual improvement in NPL levels, banks profitability would continue to be the highest amongst peers in FY11 and FY12. Despite superior fundamentals, PNB trades at 15-20% discount to SBI. We expect banks valuation to rerate near SBI or even higher in the next one year as PNB offers a much attractive FY12E RoE-P/adj.BV mix. Using our proprietary valuation model, Bank 20, we assign a FY12 P/adj.BV multiple of 1.7x to PNB and arrive at 6-9 month price target of Rs 1246 and recommend buy

Accumulate PNB; target of Rs 1194

At the CMP, Punjab National Bank is trading at 1.6x its FY11E ABV and 1.3x its FY12E ABV, which is at a premium to its other peers. We believe the valuations are likely to remain at a premium compared to peers as it is likely to deliver RoEs at~24% and RoAs at ~1.5% over FY10-12E which is likely to be the best in the sector. Its restructured book, which is 6.5% of the total advances, is on the higher side. This poses some risk to unforeseen slippages which remains the only foreseeable risk in this exceptionally well managed bank. We maintain our Accumulate rating, with a price target of Rs 1194.

Buy PNB with target of Rs 1315

In Q3FY10, Punjab National Bank (PNB) reported strong growth of 18.6% (Y/Y) in net interest income (NII) to Rs 23.3 billion in-line with our estimates of Rs 23.8 billion; growth in NII was on the back of sharp fall of 98 bps (Y/Y) in cost of funds compared to 89 bps (Y/Y) decline in yield on funds, on sequential basis cost of funds and yield on funds declined by 40 bps and 19 bps respectively. PNB's CASA share improved to 39.5% from 38.5% in Q2FY10 and 37.4% in Q3FY09. In the quarter, core fee income reported 14% (Y/Y) growth to Rs 3.8 billion and treasury income halved to Rs 1.6 billion (including of Rs 714 million from sale of 26% in PNB Housing Finance). We revise our earning estimates upward to factor in higher volume growth in credits and strong margin expansion; we increase our FY10 and FY11 earnings by 34% and 33.5% respectively and increase our target price by 20% to Rs 1,315 from previous target price of Rs 1,092 and upgrade the stock to BUY from Outperformer with a target price of Rs 1,315 at 2.2x adjusted book value FY11, says Karvy Stock Broking.

Buy Punjab National Bank; target Rs 1053

We are impressed by the sharp decline in the cost of deposits, improved yields in the quarter and traction on CASA growth. While 6% restructured loans are relatively higher compared with BoB, Canara Bank and Union Bank, we believe our FY10 and FY11 credit costs assumptions capture the likely asset quality deterioration. We have upgraded our earnings by 12% for FY10 and 15% for FY11 to factor in a) better NII, and b) stronger fee income traction. The stock trades at 1.4x FY11E BV and 6.1x FY11E EPS which appears undervalued. While consistent superior core operating performance deserves a rerating and a multiple closer to the fair value multiple of 2x (assuming 20% sustainable RoE), the transition could be slower. Maintain Buy with a target price of Rs 1,053 (1.7x FY11E BV), an upside of 23%.

Hold Punjab National Bank

Punjab National Bank (PNB) reported a strong set of numbers, with net profit rising more than 62% yoy to Rs. 8.3 bn. The prime reasons for the strong performance were robust growth in advances and high treasury income. However, a sharp rise in the restructured assets has raised concerns over the asset quality. In the next few quarters, we believe delinquencies may increase, NIM to witness some strain, and advances growth will moderate. Though, rising fee income will be the key driver to Banks growth in the upcoming time. Our DECF valuation suggests a fair value of Rs. 767, indicating no potential upside from the current levels. Further, the stock is trading at a P/B of 1.4x (vis--vis an average P/B of 1.2 for PSU banks) and has advanced significantly in the last three months. Hence, we maintain our Hold rating on the stock.

Hold PNB, target of Rs 764

The bank has performed well amidst challenging circumstances. However, the spike in restructuring overshadows the otherwise good earnings performance. The higher restructuring (vs many peers) may act as a drag on the stock in the near term. We have lowered our earnings estimate by 2.2% for FY2010 and by 5.9% for FY2011. At the current market price of Rs 705, the stock trades at 5.6x FY2011E EPS, 3x FY2011E PPP per share and 1.3x FY2011E adjusted BV per share. We downgrade the stock to Hold while maintaining our price target at Rs 764.

Buy PNB, target of Rs 747

We believe Punjab National Bank, 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 banks core competitiveness in retail deposits is underpinned by the relatively high concentration of its business in rural areas, especially in North India, that are relatively underpenetrated by other banks and we have a positive outlook on its aggressive medium-term growth thrust in these areas. At CMP, the stock is trading at 5.3x FY2011E EPS of Rs1 20.5 and 1.1x FY2011E adjusted book value of Rs 597.4. We maintain a 'buy' rating on the stock, with a revised 12-month target price of Rs 747, implying an upside of 17%.

Buy PNB, target of Rs 721

Punjab National Banks 4QFY09 PAT at Rs 8.7 billion was higher than our estimate of Rs 8.1 billion. We like PNB for its inherent strengths of large branch network in the cash-rich North India, strong liability side of balance sheet, higher sustainable margins, strong tier-I at 9% and improved asset quality. We expect momentum to slow down in loan growth and fee income. However; return ratios will remain superior with RoA at 1.3% and RoE at 23% . Post 4QFY09 results, we have increased our EPS estimates by 11-12% for FY10-11. We expect PNB to report EPS of Rs106 in FY10 and Rs124 in FY11. BV would be Rs 494 in FY10 and Rs 585 in FY10. The stock trades at 1.3x FY10E BV and 6.1x FY10E EPS. We have maintained buy rating on the stock, target of Rs 721.

Accumulate PNB, target of Rs 682

Punjab National Banks (PNB's) Q4FY09 PAT grew by 59.2% YoY at Rs 8.66 billion. This was higher than our estimate of Rs 7.1 billion and also the market estimates, largely led by lower provisions and high treasury gains. We have discontinued giving a significant discount (Rs 40 per share for its commercial real estate exposure of Rs 60 billion). Equity capital is currently again available to real estate companies as capital markets have improved. Hence, we feel debt exposure to real estate companies should not attract any significant discounts. At the CMP, the stock is trading at 1.4x FY10 P/BV, 1.5X FY10E P/ABV and 6.5xFY10E P/E in-line, with its peer group banks. However, it has one of the best RoEs (>20%) and RoAs (1.2%) in the sector, the risk of continuation of current Chairman at the helm of affairs is the only pertinent non-fundamental risk that we can envisage at the current juncture. We upgrade the stock to an Accumulate rating, with a revised price target of Rs 682.

Add Punjab National Bank, target of Rs 754

PNBs 4QFY09 net profit was up 59% YoY to Rs 8,656 million, while full-year FY09 net profit was up 51% to Rs 31 billion. Rise in operating expenses and provision charges was more than offset by strong growth in interest and non-interest income. NPLs fell sharply even as the bank restructured 2.6% of its loans, taking problem loans to 4.4% as at end-FY09 from 2.7% as at end-FY08. The bank made aggressive provision for loan-loss charges, which increased 3x for full-year FY09, raising the NPL coverage to 91%, the highest in our coverage universe. We are upgrading our FY10 profit estimates by 8%, and are now forecasting 10% growth in profits. We maintain 'ADD', target price of Rs 754,

Buy Punjab National Bank, target of Rs 641

In Q4FY09, we expect Punjab National Bank (PNB) to report 27.6% (Y/Y) business growth on the back of 30% growth in advances and 26% growth in deposits. We expect the bank to report expansion in margin due to improvement in cost of funds; NII is expected to grow by 41.4% (Y/Y) to Rs 21.4 billion. For Q4FY09, we expect PNB's fee income at Rs 3.4 billion compared to Rs 3.2 billion in Q4FY08 and treasury income to decline to Rs 520 million from Rs 680 million in Q4FY08. Other income would grow by 6.7% (Y/Y) to Rs 5.7 billion and total net income would grow by 32% (Y/Y) to Rs 27.2 billion. For FY10, we reduce our earning estimates by 21% to Rs 25.7 billion due to moderation in business growth (from 20.3% to 18% (Y/Y)), reduction in NIM (from 3.09% to 2.96%) and higher credit cost of 0.74% compared to earlier estimate of 0.51%. We reduce our target price by 12% to Rs 641; at current price, the stock quotes at 1.18x FY2010 adjusted book value; we rate the stock as a BUY with a price target of Rs 641 at 1.56x adjusted book value FY2010.

Hold Punjab National Bank

Punjab National Bank (PNB) reported flat Q310 results with net profit increasing by only 0.5% y-o-y to Rs 10.1 billion primarily led by higher provision charge. Loan book grew by 20.3% y-o-y to Rs 1.7 trillion, lower than our estimate of 22.9%. In the next few quarters, we believe delinquencies will come down as the macro economic conditions are improving and margins will show some improvement. Our DECF valuation suggests a fair value of Rs 964, indicating a limited potential upside of 8.7% from the current levels. Further, the stock has advanced significantly in the last three months. Hence, we maintain our hold rating.

Buy PNB, target of Rs 512

Punjab National Bank (PNB) has reported a profit after tax (PAT) of Rs 1,005.8 crore for Q3FY2009, indicating a whopping growth of 85.8%. PNB's NII grew by a strong 38.1% yoy to Rs 1,967.4 crore. We maintain our Buy recommendation with a revised price target of Rs 512.