Punjab National Bank

08 Jun

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.   

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

  • On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.
  • Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
  • As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
  • The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
  • During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
  • PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
  • PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

  • With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E. 

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of PNB was ₹ 42/- as of 8-June-2021.  It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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23 Jun

Expect profit in all quarters of FY21–PNB

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,323. Within NIFTY50, BAJAJAUTO (+7.1%), BAJFINANCE (+5.9%), and BAJAJFINSV (+4.8%) were the top gainers, while WIPRO (-1.7%), GAIL (-1.2%) and ONGC (-1.1%) were the top losers. Among the sectoral indices, PSU BANK (+3.9%), METAL (+2.6%), and PHARMA (+2.2%) gained the most.  IT (-0.3%) was the only sector to end in the red.

 

Expect profit in all quarters of FY21–PNB

 

Excerpts of an interview with Mr.S S Mallikarjuna Rao, MD&CEO–Punjab National Bank (PNB)published in Business Standard dated 22ndJune 2020:

  • Management expects credit growth of 6% in FY21E from the earlier estimate of 12%.
  • The credit recovery in MSMEs and retail segments is expected to be faster than other bigger segments. Growth in bigger segments will probably come from January 2021.
  • PNB management expects robust comeback in certain sectors of MSMEs in October. Hospitality and travel segments will be slower to recover but less labor-intensive sectors and highly technology-oriented industries will come back faster.
  • PNB does not see any pain in the hospitality portion of the loan book at the moment. Pain may come from the telecom sector which is in stress. But even in telecom, PNB has non-funded exposure, i.e. bank guarantees are given in favor of government. In PNB’s loan book, they do not see any incremental pain in any sectors apart from those already identified.
  • Mr Rao expects profit in every quarter of FY21. In 1HFY20, PNB might earn Rs 18,000 mn from treasury due to yield advantage. In 1QFY21 itself, PNB has booked Rs 11,000 mn treasury gains compared to normal quarterly run rate of Rs 4,000- 5,000 mn. Provisioning burden will impact the profit, but the backlog of provisions would not continue after September.In 2HFY21E, earning will accrue from lending as operating profit stabilizes.
  • PNB has a high stake of government at 85%. The Government stake has to be brought down in 2 years as the threshold for minimum public shareholding is 25%. So incremental fund raising will be via QIP/ public issue/ LIC/ tier-1 or tier-2 capital.
  • Post amalgamation of PNB with Oriental Bank of Commerce, and United Bank of India, there are a lot of non-core asset in the form of properties that PNB will look to sell. Rs 3,000 – 4,000 mn can be generated through this route in FY21E. PNB does not plan to divest interest in joint ventures and associates, including stake in PNB Housing, as they want to hold onto the brand name and see the entities grow.
  • Post the amalgamation, IRDAI has given exemption to PNB to hold stake in 2 insurance companies. There is no sunset clause for this exemption and PNB will continue to hold share in both the companies.
  • On the progress in amalgamation process, organizational restructuring will be complete from 1st July 2020. Technology integration of surrounding applications and ATMs will be complete by September. Core banking integration for one bank will be done by December 2020, and for the other bank by March 2021.
  • For the amalgamated entity, 500,000 customers are eligible under the emergency credit guarantee scheme and Rs 150 – 160 bn can be disbursed. PNB has already sanctioned loans worth Rs 30 bn to 120,000 customers and the remaining gap can be filled in by first week of July.

Consensus Estimate: (Source: market screenerand investing.com websites)

  • The closing price of PNB was ₹ 35.8/- as of 22-June-2020. It traded at 0.7x/ 0.4x the consensus BVPS estimate of ₹ 53.6/ 86.6for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 52.7/- implies a PBmultiple of 0.6x on FY22E BVPS of ₹ 86.6.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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