Netutral Punjab National Bank Ltd For Target Rs.75 - Motilal Oswal Financial Services
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PPoP in line; lower provisions drive earnings
Asset quality continues to recover sharply
* Punjab National Bank (PNB) reported a healthy quarter, with a 28% beat on PAT primarily driven by lower provisions. PAT surged 327% YoY to INR17.6b, while NII grew 20% YoY (in line) to INR99b as NIMs improved 3bp QoQ to 3.11% in 2QFY24.
* Loan book grew 15% YoY (3% QoQ) to INR8.9t, led by a healthy traction in corporate and retail loans. Deposits grew 10% YoY (flat QoQ) to INR13t. CASA ratio increased 25bp QoQ to 42.2%.
* Slippages dipped to INR18b (0.9% annualized) enabling a 77bp/51bp QoQ decline in GNPA/NNPA ratios to 6.96%/1.47%. PCR rose 416bp QoQ to 80%.
* We maintain our estimates and project an RoA/RoE of 0.6%/9.0% in FY25. Reiterate Neutral with a TP of INR75 (premised on 0.8x FY25E ABV).
Domestic NIMs improve to 3.24%; PCR jumps to 80%
* PNB reported a PAT of INR17.6b (+327% YoY, 28% beat) driven by lower provisions (down 30% YoY, 17% lower than MOSLe). NII grew 20% YoY (4.4% QoQ) aided by a 3bp QoQ improvement in NIMs to 3.11%.
* Other income grew 6% YoY (down 12% QoQ, 10% miss) to INR30b. Treasury gains stood at INR2.1b in 2QFY24 vs. gains of INR20m in 2QFY23.
* Opex increased 21% YoY as the bank made AS-15-related provisions for wage revision. C/I ratio declined to 52% (v/s 53.9% in 1QFY24). PPoP thus grew 12% YoY to INR62.2b (in line) during the quarter.
* Loan book grew 15% YoY (+3% QoQ) to INR8.9t, fueled by a healthy traction in retail segment, which grew 6.4% YoY. The MSME book rose 6% YoY (5% QoQ) and Agri increased 5% YoY (flat QoQ), while the international book jumped 9.9% YoY (6.5% QoQ) in 2QFY24.
* Deposits grew 10% YoY (flat QoQ) to INR13t, led by 15% YoY growth in term deposits and 3% YoY (1.4% QoQ) growth in CASA deposits. Thus, the CASA ratio increased to 42.2% from 41.9% in 1QFY24.
* On the asset quality front, slippages declined 24% QoQ to INR18b (0.9% annualized). GNPA/NNPA ratios improved 77bp/51bp QoQ to 6.96%/1.47%. PCR increased 416bp QoQ to 80%.
* SMA-2 (above INR50m) moderated 30% YoY to INR14.5b and stood at 16bp of domestic loans.
Highlights from the management commentary
* Full-year NIMs are likely to be in the range of ~2.9-3.0% by end-FY24, and NII growth is expected at ~10% YoY for FY24.
* On account of the deposit re-pricing, NIMs will be impacted as the whole of deposit has not been re-priced yet and 15% of total term deposit is yet to be re-priced.
* Management has given a credit growth guidance of ~12-13% and deposit growth guidance of ~10-11% for FY24.
* Slippages stood at INR18b in 2QFY24, out of which Agri slippages were at INR4.2b, MSME at INR6.83b, Retail at INR4.2b and Others at INR2.2b.
Valuation and view
PNB reported a steady quarter as lower-than-expected provisions drove earnings while asset quality continued to demonstrate a sharp improvement. NII growth was healthy QoQ supported by steady margins and healthy growth in RAM segments. Asset quality continued to improve, aided by lower slippages and healthy recoveries, while PCR improved further to 80%. SMA overdue (with loans over INR50m) remains under control at 0.16% of domestic loans, while the bank continues to guide for robust recoveries. The bank has thus guided for a credit cost of 1.50-1.75% for FY24 vs. >2% in FY23. We maintain our estimates and project an RoA/RoE of 0.6%/9.0% by FY25. Reiterate Neutral with a TP of INR75 (premised on 0.8x FY25E ABV)
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