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2QFY2013 Result Update | Banking

October 29, 2012

Punjab National Bank
Performance Highlights
 
Particulars (` cr) NII Pre-prov. profit PAT
Source: Company, Angel Research

ACCUMULATE
CMP Target Price
% chg (qoq) (1.2) (10.8) (14.5) 2QFY12 3,453 2,528 1,205 % chg (yoy) 5.7 0.2 (11.6)

`757 `843
12 Months

2QFY13 3,649 2,533 1,066

1QFY13 3,695 2,841 1,246

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Banking 25,676 1.1 1091/659 96,898 10 18,636 5,666 PNBK.BO PNB@IN

Punjab National Bank (PNB) registered a disappointing performance for 2QFY2013, with its net profit declining by 11.6% yoy. The bank’s disappointing performance was a result of a muted performance on the operating front (operating profit came in flat yoy) and considerably higher provisioning expenses on
the back of significant deterioration in the asset-quality, evident from elevated slippages (quarterly slippages at a high of 6.2%) and ballooned restructuring. NIM declines sequentially, slippages surge: During 2QFY2013, advance for the bank grew by healthy pace of 18.4% yoy aided by strong traction in services and retail lending. Growth in CASA deposits came in healthy at 15.6% yoy (current deposits grew by 19.2% yoy, while savings deposits grew by 14.8% yoy). Reported CASA ratio improved by 170bp sequentially to 37.0%. Interest reversal of `163cr on slippages and full effect of base rate reduction, resulted in a 43bp qoq decline in the yield on advances, which coupled with a 6bp qoq decline in yield on investment, resulted in a10bp qoq decline in reported NIMs to 3.5%. Non-interest income (excl. treasury) degrew by 2.4% yoy, due to flat performance on the fee income front and lower recoveries. During the quarter, the bank disappointed on the asset quality front, with slippages of `4,544cr compared to `2,769cr in 1QFY2013 and `2,819 in 4QFY2012. Annualized slippage ratio came in at 6.2% compared to 3.8% in 1QFY2013 and 4.7% in 4QFY2012. Recoveries and upgrades during the quarter came in much lower at `492cr compared to `1,466cr in 1QFY2013. Consequently, the gross and net NPA levels increased significantly, on an absolute basis, by 40.4% and 60.3%, qoq respectively. Going ahead, the management expects slippages to continue in-line with the slowing economy. The bank restructured ~`2,770cr during the quarter, thereby taking its outstanding restructured book to `27,852cr. Outlook and valuation: The bank’s valuations are currently at a low of 0.8x FY2014 ABV compared to its eight year range of 1.0–1.6x and median of 1.4x, due to the asset quality concerns facing the sector, which are likely to persist for the next few quarters for lack of visible macro-economic catalyst for improvement in the near term. We have adjusted our estimates and target price downwards to factor in the continued asset quality deterioration. The bank structurally has lower cost of deposits than peers and has cyclically already experienced relatively higher asset quality pain than peers. That said, valuation-wise, the stock trades at even below the lower end of its historical range, factoring in most of the fundamental concerns. Hence, we recommend an Accumulate with a target price of `843.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 56.1 20.6 17.4 5.9

Abs. (%) Sensex PNB

3m 10.7 5.7

1yr 4.7 (21.3)

3yr 16.1 (9.8)

Key financials
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research

FY2011 11,807 39.3 4,434 13.5 3.6 139.9 5.4 1.2 1.3 24.4

FY2012 13,414 13.6 4,884 10.2 3.3 144.0 5.3 1.0 1.2 21.1

FY2013E 15,236 13.6 4,579 (6.3) 3.2 135.0 5.6 1.0 0.9 16.3

FY2014E 17,939 17.7 5,572 21.7 3.3 164.3 4.6 0.8 1.0 17.3

Vaibhav Agrawal
022 – 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com

Varun Varma
022 – 3935 7800 Ext: 6847 varun.varma@angelbroking.com

Sourabh Taparia
022 – 3935 7800 Ext: 6872 Sourabh.taparia@angelbroking.com

Please refer to important disclosures at the end of this report

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Punjab National Bank | 2QFY2013 Result Update

Exhibit 1: 2QFY2013 performance
Particulars (` cr) Interest earned - on Advances / Bills - on investments - on balance with RBI & others - on others Interest Expended Net Interest Income Other income Other income excl. treasury - Fee Income - Treasury Income incl. MF Div. - Recov. from written off a/cs - Others Operating income Operating expenses - Employee expenses - Other Opex Pre-provision Profit Provisions & contingencies - Provisions for NPAs - Other Provisions PBT Provision for Tax PAT Effective Tax Rate (%)
Source: Company, Angel Research

2QFY13 10,421 7,987 2,311 55 68 6,772 3,649 905 765 475 140 60 230 4,555 2,022 1,426 596 2,533 1,074 1,140 (66) 1,459 393 1,066 27.0

1QFY13 10,545 8,197 2,283 54 11 6,850 3,695 1,166 1,030 666 136 87 277 4,861 2,020 1,420 601 2,841 1,032 900 132 1,808 563 1,246 31.1

% chg (qoq) (1.2) (2.6) 1.2 1.4 514.2 (1.1) (1.2) (22.4) (25.7) (28.7) 2.9 (31.0) (16.8) (6.3) 0.1 0.5 (0.8) (10.8) 4.0 26.7 (149.9) (19.3) (30.1) (14.5) (415)bp

2QFY12 8,952 7,045 1,852 48 7 5,499 3,453 889 784 477 105 68 239 4,341 1,814 1,240 573 2,528 710 319 391 1,817 612 1,205 33.7

% chg (yoy) 16.4 13.4 24.8 14.1 936.6 23.1 5.7 1.9 (2.4) (0.4) 33.3 (11.8) (3.6) 4.9 11.5 15.0 3.9 0.2 51.2 257.4 (116.9) (19.7) (35.8) (11.6) (673)bp

1HFY13 20,966 16,184 4,594 110 79 13,622 7,345 2,071 1,795 1,141 276 147 507 9,416 4,042 2,846 1,196 5,374 2,106 2,040 185 3,267 956 2,311 29.3

1HFY12 17,267 13,621 3,538 82 26 10,699 6,568 1,973 1,694 1,075 279 177 442 8,540 3,539 2,453 1,086 5,002 1,604 885 424 3,398 1,088 2,310 32.0

% chg (yoy) 21.4 18.8 29.8 33.5 197.8 27.3 11.8 5.0 6.0 6.1 (1.1) (16.9) 14.9 10.3 14.2 16.0 10.2 7.4 31.3 130.5 (56.3) (3.8) (12.1) 0.0 (275)bp

Exhibit 2: 2QFY2013 – Actual vs Angel estimates
Particulars (` cr) Net interest income Other income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Company, Angel Research

Actual 3,649 905 4,555 2,022 2,533 1,074 1,459 393 1,066

Estimates 3,746 1,075 4,821 2,042 2,779 988 1,791 581 1,210

Var. (%) (2.6) (15.8) (5.5) (1.0) (8.8) 8.7 (18.5) (32.3) (11.9)

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Punjab National Bank | 2QFY2013 Result Update

Exhibit 3: 2QFY2013 performance analysis
Particulars Advances (` cr) Deposits (` cr) Credit-to-Deposit Ratio (%) Current deposits (` cr) Saving deposits (` cr) CASA deposits (` cr) Reported CASA ratio (%) CAR (%) Tier 1 CAR (%) Profitability Ratios (%) Cost of deposits Yield on advances Yield on investments Yield on funds Cost of funds Reported NIM Cost-to-income ratio Asset quality Gross NPAs (` cr) Gross NPAs (%) Net NPAs (` cr) Net NPAs (%) Provision Coverage Ratio (%) Slippage ratio (%) Credit cost (%)
Source: Company, Angel Research

2QFY13

1QFY13

% chg (qoq)

2QFY12 % chg (yoy) 18.4 17.3 69bp 19.2 14.8 15.6 (10)bp (50)bp 35bp 39bp (83)bp 8bp (14)bp 23bp (45)bp 262bp 172.3 241bp 277.5 185bp (2077)bp 455bp 66bp

294,747 294,468 400,747 385,355 73.5 28,040 76.4 25,723

0.1 249,020 4.0 341,783 (287)bp 9.0 72.9 23,531

115,389 107,425 143,429 133,148 37.0 11.7 8.7 6.9 11.1 7.9 8.9 5.8 3.5 44.4 14,024 4.5 7,883 2.7 54.3 6.2 1.0 35.6 12.6 9.3 7.0 11.5 7.9 9.1 5.9 3.6 41.6 9,988 3.3 4,917 1.7 62.8 3.8 0.8

7.4 100,491 7.7 124,022 140bp (84)bp (61)bp (7)bp (43)bp (6)bp (26)bp (16)bp (10)bp 283bp 40.4 112bp 60.3 101bp (850)bp 242bp 19bp 37.1 12.2 8.4 6.5 11.9 7.8 9.0 5.5 4.0 41.8 5,150 2.1 2,089 0.8 75.1 1.6 0.3

Healthy business growth continues in 2QFY2013
During 2QFY2013, the bank’s business grew at a healthy pace, with advances and deposits registering a growth of 18.4% and 17.3% yoy, respectively. Growth in advances was primarily on the back of increased advances to the services sector (growth of 45.8% yoy). Retail loan book for the bank increased by a healthy 20.3% yoy, as robust growth was witnessed in all segments viz- housing, auto and others. Overseas advances registered a growth of 62.1% yoy (partly on account of INR depreciation). As of 2QFY2013, the overseas loan book for the bank accounted for 9% of its total loan book. The bank’s commercial real estate exposure declined by 8.5% yoy during 2QFY2013. On the liabilities front, current deposits witnessed traction, with a healthy growth of 19.2% yoy (9.0% sequentially), while growth in saving deposits was relatively lower at 14.8% yoy (7.4% qoq). Overall CASA deposits grew by 7.7% sequentially, much higher than the growth of 4.0% qoq registered in overall deposits. Consequently, the reported CASA ratio improved by 140bp qoq to 37.0%. During 2QFY2013, the bank shed around `2,079cr of high costing bulk deposits (including CDs). Consequentially, the bank’s share of bulk deposits (including CDs) reduced from 22.2% as of 1QFY2013 and 23.8% as of 2QFY2012 to 20.8%
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Punjab National Bank | 2QFY2013 Result Update

as of 2QFY2013. As per the management, ~80% of outstanding bulk deposits cost more than 9% and would be due for re-pricing in the next quarter. The management is expected to reduce its high cost bulk deposits portfolio to ~15% by FY2013, which though could lead to lower balance sheet growth, but would aid higher NIMs.

Exhibit 4: Traction in services and retail lending aids healthy loan book Gr.
Particulars (` cr) Agri Retail MSME Medium & Large Corporates Comm. Real Estate Services & Others Domestic non-food credit Food credit Domestic credit Overseas advances Global gross credit
Source: Company, Angel Research

2QFY13 40,291 29,745 30,701 93,487 9,473 64,681 5,723 26,772

1QFY13 % chg (qoq) 44,591 29,280 30,960 92,558 9,759 59,679 6,615 25,987 (9.6) 1.6 (0.8) 1.0 (2.9) 8.4 (13.5) 3.0

2QFY12 % chg (yoy) 35,076 24,732 29,145 87,318 10,353 44,356 4,214 16,511 14.9 20.3 5.3 7.1 (8.5) 45.8 16.2 35.8 16.5 62.1 19.5

268,378 266,827 274,101 273,442 300,873 299,429

0.6 230,980 0.2 235,194 0.5 251,705

Exhibit 5: Business growth remains healthy
Adv. yoy chg (%) 30.0 25.0 20.0 15.0 10.0 72.9 73.7 Dep. yoy chg (%) 77.4 76.4 CDR (%, RHS) 78.0 76.0 73.5 74.0 72.0 70.0 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
Source: Company, Angel Research

Exhibit 6: CASA ratio improve sequentially
Calculated CASA ratio (%) 38.0 35.0 32.0 29.0 26.0 11.7 11.7 11.5 9.8 10.0 CASA yoy growth (%, RHS) 15.6 20.0

19.3 25.0

18.7 23.4

21.3 21.3

21.2 18.9

18.4 17.3

36.3

35.3

35.3

34.6

5.0 -

23.0 20.0

35.8

2QFY12 3QFY12 4QFY12 1QFY13 1QFY13

Source: Company, Angel Research

NIMs decline by 10bp sequentially
The bank’s yield on advances declined by 43bp qoq, on account of a) interest reversal of `163cr during the quarter, b) full impact of base rate cut in May 2012 and c) the bank’s policy of charging recently reduced rates for housing loan products to existing customers. Yield on investments for the bank also came in lower by 6bp sequentially to 7.9%. Overall, yield on funds declined by 26bp qoq to 8.9%. The bank’s cost of deposits decreased marginally by 7bp qoq to 6.9%. Consequently, the reported NIMs of the bank declined by 10bp qoq to 3.5%. The management has maintained its NIMs guidance of ~3.5% for FY2013.

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Punjab National Bank | 2QFY2013 Result Update

Exhibit 7: Yield on funds lower by 26bp sequentially
(%) 9.50 9.00 8.50 8.00 7.50 7.00 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 9.01 9.18 8.67

Exhibit 8: NIM declines by 10bp qoq
(%) 4.20 4.00 3.80 3.60 3.40 3.20 3.00 2.80 2.60

9.13 8.87

3.95

3.88 3.50 3.60 3.50

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

Source: Company, Angel Research

Source: Company, Angel Research

Subdued performance on the non-interest income (excluding treasury) front
During 2QFY2013, the non-interest income (excluding treasury) de-grew by 2.4% yoy, due to flat performance on the fee income front and lower recoveries. Commission, exchange and brokerage (CEB) income for the bank remained flat on a yoy basis, as a 14.3% yoy growth in the LC/LG (letter of credit/ letter of guarantee) income was offset by a 20.8% yoy decline in the processing fees income stream. The bank has started selling life policies of MetLife from November and has seen healthy traction in income on this front. Recoveries from written-off accounts declined by 11.8% yoy to `60cr, whereas income from forex transactions declined by 4.5% yoy to `127cr. Treasury income (including dividend from MFs) came in at `127cr compared to `133cr in 2QFY2012 and `212cr in 1QFY2013. Overall, the non-interest income came in `905cr, registering a marginal growth of 1.7% yoy.

Exhibit 9: Growth in non-interest inc. aided by higher forex and CEB inc.
Particulars (` cr) CEB Treasury incl. MF Dividend Forex Recoveries Others Other income Other income excl. treasury
Source: Company, Angel Research

2QFY13 1QFY13 475 140 127 60 103 905 765 666 136 212 87 66 1,166 1,030

% chg (qoq) 2QFY12 (28.7) 2.9 (40.1) (31.0) 56.1 (22.5) (25.7) 477 105 133 68 107 889 784

% chg (yoy) (0.4) 33.3 (4.5) (11.8) (3.7) 1.7 (2.5)

Slippages surge, amidst lower recoveries and/upgrades
During 2QFY2013, the bank disappointed significantly on the asset quality front, with slippages of `4,544cr compared to `2,769cr in 1QFY2013 and `2,819 in 4QFY2012. Annualized slippage ratio came in at 6.2% compared to 3.8% in 1QFY2013 and 4.7% in 4QFY2012. Recoveries and upgrades during the quarter came in much lower at `492cr compared to `1,466cr in 1QFY2013. Consequently, gross and net NPA levels increased significantly, on an absolute

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Punjab National Bank | 2QFY2013 Result Update

basis, by 40.4% and 60.3%, qoq respectively. Going ahead, the management expects slippages to continue in-line with the slowing economy. Additionally, the bank restructured ~`2,770cr during the quarter (compared to `1,239cr restructured in 1QFY2013), thereby taking its outstanding restructured book, which is stated borrower-wise, to `27,852cr (9.4% of net advances). More than 50% of the incremental restructuring came from the infrastructure sector (which includes power). Other sectors that contributed to the incremental restructuring during the quarter included textiles, iron & steel and, drilling. Out of the outstanding restructured book, ~30.5% is power (majorly discoms). Slippages from the restructuring book for the bank have been ~18.5%, considering total slippages currently and outstanding restructured book as of 1HFY2012. The provisioning coverage ratio for the bank dipped sharply by 850bp qoq and 2,077bp yoy to 54.3%.

Exhibit 10: Slippages came in at a high of 6.2%
Slippages (%) 7.0 6.0 5.0 4.0 3.0 2.0 1.0 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 0.3 0.6 0.9 0.8 Credit cost (%, RHS) 1.0 1.2 1.0 0.8 0.6 0.4

Exhibit 11: NPA ratios jump up on higher slippages
5.0 4.0 3.0 2.0 Gross NPAs (%) 75.1 70.0 Net NPAs (%) 62.7 62.8 54.3 PCR (%, RHS) 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -

1.6

2.8

4.7

3.8

6.2

2.1 0.8

2.4 1.1

2.9 1.5

3.3 1.7

-

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
Source: Company, Angel Research;

Source: Company, Angel Research

Exhibit 12: Slippages surge, amidst lower recoveries/upgrades in 2QFY13
Particulars (` cr) Opening Additions Deductions - Write offs - Recoveries - Upgrades Closing 2QFY13 9,988 4,544 508 16 384 108 14,024 1QFY13 % chg (qoq) 8,720 2,769 1,500 34 570 896 9,988 14.5 64.1 (66.1) (52.9) (32.6) (87.9) 40.4 2QFY12 % chg (yoy) 4,894 993 737 18 513 206 5,150 104.1 357.6 (31.0) (11.1) (25.1) (47.4) 172.3 FY2012 4,379 6,672 2,331 126 1,675 530 8,720

Source: Company, Angel Research

Cost-to-income ratio up by 262bp yoy and 283bp qoq to 44.4%
Operating expenses for the bank were higher by 11.5% on a yoy basis, on the back of 15.0% yoy increase in employee expenses (as provisions for employee benefits as per AS-15 increased by 23.3% yoy) and 3.9% yoy increase in other operating expenses. However, growth in operating income was modest at 4.9% yoy, which led the cost-to-income ratio to increase by 262bp yoy and 283bp qoq to 44.4%.

October 29, 2012

4.5 2.7

0.2

1.0

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Punjab National Bank | 2QFY2013 Result Update

Exhibit 13: Steady branch expansion continues
Branches 5,800 5,700 5,600 5,500 5,400 5,300 5,200 5,100 5,000 6,009 5,793 5,619 ATMs (RHS) 6,059 6,005 6,100 6,000 5,900 5,800 5,700 5,600 5,500 5,400 5,300

Exhibit 14: Cost-to-income ratio spikes up on lower income
50.0 40.0 30.0 20.0 Cost-to-income ratio (%) 1.8 1.8 1.5 1.5 1.0 Opex to average assets (%, RHS) 1.8 1.7 2.0

5,315

5,393

5,658

5,697

5,748

41.8

40.4

36.0

41.6

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
Source: Company, Angel Research

44.4

10.0

0.5 -

2QFY12 3QFY12 4QFY12 1QFY13 2QFY13
Source: Company, Angel Research

Investment arguments
Strong CASA legacy, but losing market share
PNB has a structural advantage of having relatively better CASA ratio of 37.0% (as of 2QFY2013), which is driven by strong rural and semi-urban presence, especially in North India (total of 5,748 branches and 6,000+ ATMs). Although the high CASA ratio is expected to sustain the higher NIMs, the bank has been losing its market share like most other public sector banks on account of slow branch expansion and competition from private banks – savings market share declined by 53bp to 7.4% during FY2008–12.

Investment concerns
Weak asset quality not surprising
PNB was one of the highest risk-taking banks immediately post the Lehman crisis and initially, started delivering very high yield on assets and ROEs of as much as 26%. For the last couple of years, we had been concerned that the inevitable seasoning of that book would lead to asset quality issues for the bank and that is what is getting increasingly reflected in the numbers. During FY2012, slippage ratio for the bank was the highest in the last four years at 2.7%. In fact in 1HFY2013, the bank’s annualized slippage ratio has spiked up sharply to 4.2%. Taking into account the aggressive restructuring carried out in 2HFY2012, the bank’s relatively higher exposure to risky sectors and the overall weak macro-economic environment, we remain cautious on the incremental asset quality pressures in the near term.

Outlook and valuation
The bank’s valuations are currently at a low of 0.8x FY2014 ABV compared to its eight year range of 1.0–1.6x and median of 1.4x, due to the asset quality concerns facing the sector, which are likely to persist for the next few quarters for lack of visible macro-economic catalyst for improvement in the near term. We have adjusted our estimates and target price downwards to factor in the continued asset quality deterioration. The bank structurally has lower cost of deposits than peers and has cyclically already experienced relatively higher asset quality pain than
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Punjab National Bank | 2QFY2013 Result Update

peers. That said, valuation-wise, the stock trades at even below the lower end of its historical range factoring in most of the fundamental concerns. Hence, we recommend an Accumulate with a target price of `843.

Exhibit 15: Key assumptions
Particulars (%) Credit growth Deposit growth CASA ratio NIMs Other income growth Growth in staff expenses Growth in other expenses Slippages Coverage
Source: Angel Research

Earlier estimates FY2013 12.0 13.0 35.2 3.3 7.7 20.0 12.0 3.2 65.0 FY2014 14.0 15.0 34.9 3.3 6.1 12.0 12.0 2.9 70.0

Revised estimates FY2013 12.0 13.0 35.2 3.2 5.1 20.0 7.0 4.3 60.0 FY2014 15.0 16.0 34.6 3.3 5.6 12.0 10.0 3.3 65.0

Exhibit 16: Change in estimates
FY2013 Particulars (` cr) NII Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Angel Research

FY2014 Earlier estimates 17,902 4,803 22,705 9,207 13,497 5,151 8,346 2,708 5,638 Revised Var. (%) estimates 17,939 4,662 22,601 9,031 13,570 5,322 8,248 2,676 5,572 0.2 (2.9) (0.5) (1.9) 0.5 3.3 (1.2) (1.2) (1.2)

Earlier estimates 15,408 4,526 19,934 8,221 11,713 4,295 7,418 2,407 5,011

Revised Var. (%) estimates 15,236 4,416 19,652 8,107 11,545 5,005 6,541 1,962 4,579 (1.1) (2.4) (1.4) (1.4) (1.4) 16.5 (11.8) (18.5) (8.6)

Exhibit 17: P/ABV band
Price (`) 2,400 2,000 1,600 1,200 800 400 0
Oct-04 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12

0.5x

0.9x

1.3x

1.7x

2.1x

Source: Company, Angel Research

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Punjab National Bank | 2QFY2013 Result Update

Exhibit 18: Recommendation summary
Company AxisBk FedBk HDFCBk ICICIBk* SIB YesBk AllBk AndhBk BOB BOI BOM CanBk CentBk CorpBk DenaBk IDBI# IndBk IOB J&KBk OBC PNB SBI* SynBk UcoBk UnionBk UtdBk VijBk Reco. Buy Neutral Neutral Buy Accumulate Buy Neutral Reduce Accumulate Accumulate Neutral Accumulate Neutral Accumulate Neutral Accumulate Neutral Neutral Neutral Neutral Accumulate Accumulate Neutral Neutral Accumulate Buy Neutral CMP (`) 1,222 486 641 1,069 22 415 132 106 754 280 53 421 71 405 107 95 177 74 1,145 315 757 2,170 120 75 201 65 55 Tgt. price (`) 1,476 1,270 25 492 97 860 319 449 447 108 843 2,353 226 78 Upside (%) 20.7 18.9 11.0 18.8 (8.5) 14.0 14.1 6.5 10.5 14.0 11.3 8.4 12.6 19.3 FY2014E P/ABV (x) 1.7 1.2 3.6 1.7 0.9 2.1 0.5 0.7 0.9 0.7 0.7 0.8 0.7 0.7 0.7 0.6 0.6 0.5 1.0 0.7 0.8 1.4 0.7 0.8 0.7 0.5 0.7 FY2014E Tgt. P/ABV (x) 2.0 2.0 1.1 2.5 0.6 1.0 0.8 0.8 0.7 0.7 0.9 1.5 0.8 0.6 FY2014E P/E (x) 8.9 9.4 17.8 12.9 5.8 9.8 3.6 4.3 5.5 4.1 4.4 4.9 3.4 4.0 4.4 4.1 4.2 3.6 6.1 4.8 4.6 8.4 4.4 4.6 4.3 2.9 4.8
#

FY2012-14E EPS CAGR (%) 16.0 6.7 27.9 21.7 4.2 23.5 (0.4) 1.0 6.4 20.8 38.9 7.2 100.1 (2.2) 3.1 20.1 2.8 24.5 6.5 29.0 6.8 21.7 11.5 7.9 19.8 20.7 12.1

FY2014E RoA (%) 1.6 1.1 1.9 1.5 0.9 1.5 0.9 0.9 1.0 0.8 0.7 0.9 0.6 0.8 0.8 0.9 1.1 0.6 1.3 0.9 1.0 1.0 0.7 0.6 0.8 0.7 0.5

FY2014E RoE (%) 20.2 13.3 22.0 15.7 16.9 23.5 15.7 15.3 17.0 16.3 16.1 15.3 14.7 15.1 15.9 14.4 16.3 13.3 17.7 14.4 17.3 17.7 16.6 14.4 16.3 16.2 13.0

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), Without adjusting for SASF

Company Background
Punjab National Bank is the country's second-largest bank, with a balance sheet size of over `4.7lakh cr and a pan-India network of ~5,750 branches. The bank's network is primarily spread over northern India, in Punjab, Haryana and Uttar Pradesh. Almost 62% of its branches are based in rural and semi-urban hinterland, which results in a large legacy of low-cost CASA deposits (at 37.0% of deposits, amongst the highest in the sector).

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Punjab National Bank | 2QFY2013 Result Update

Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY09 7,031 27.0 2,920 46.2 9,951 32.1 4,206 19.3 5,744 43.4 981 38.1 4,763 44.5 1,673 35.1 3,091 50.9 FY10 8,478 20.6 3,610 23.6 12,088 21.5 4,762 13.2 7,326 27.5 1,422 44.9 5,905 24.0 1,999 33.9 3,905 26.4 FY11 11,807 39.3 3,613 0.1 15,420 27.6 6,364 33.6 9,056 23.6 2,492 75.3 6,564 11.2 2,130 32.5 4,434 13.5 FY12 13,414 13.6 4,203 16.3 17,617 14.2 7,003 10.0 10,614 17.2 3,577 43.6 7,037 7.2 2,153 30.6 4,884 10.2 FY13E 15,236 13.6 4,416 5.1 19,652 11.6 8,107 15.8 11,545 8.8 5,005 39.9 6,541 (7.1) 1,962 30.0 4,579 (6.3) FY14E 17,939 17.7 4,662 5.6 22,601 15.0 9,031 11.4 13,570 17.5 5,322 6.3 8,248 26.1 2,676 32.4 5,572 21.7

Balance sheet
Y/E March (` cr) Share Capital Reserve & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash Balances Bank Balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY09 315 14,338 209,761 26.0 4,374 8,085 10,045 246,919 17,058 4,355 63,385 154,703 29.5 2,397 5,020 246,919 24.1 FY10 315 17,408 249,330 18.9 8,572 10,690 10,318 296,633 18,328 5,146 77,724 186,601 20.6 2,513 6,320 296,633 20.1 FY11 317 21,192 312,899 25.5 20,399 11,190 12,328 378,325 23,777 5,914 95,162 242,107 29.7 3,106 8,259 378,325 27.5 FY12 339 27,478 379,588 21.3 26,074 11,190 13,524 458,194 18,493 10,335 122,629 293,775 21.3 3,169 9,793 458,194 21.1 FY13E 339 31,071 428,935 13.0 28,332 10,911 15,533 515,121 19,302 11,619 140,706 329,028 12.0 3,456 11,010 515,121 12.4 FY14E 339 35,421 497,565 16.0 32,695 10,638 17,804 594,462 19,903 13,409 166,195 378,382 15.0 3,868 12,705 594,462 15.4

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Punjab National Bank | 2QFY2013 Result Update

Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov. /Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE 3.2 0.4 2.7 0.3 3.0 1.0 4.0 1.9 2.1 0.8 1.4 18.6 25.8 3.1 0.5 2.6 0.3 2.9 1.0 3.9 1.8 2.2 0.7 1.4 18.5 26.6 3.5 0.7 2.8 0.1 2.8 1.0 3.8 1.9 1.9 0.6 1.3 18.6 24.4 3.2 0.9 2.4 0.1 2.4 0.9 3.4 1.7 1.7 0.5 1.2 18.0 21.1 3.1 1.0 2.1 0.1 2.2 0.8 3.0 1.7 1.3 0.4 0.9 17.3 16.3 3.2 1.0 2.3 0.0 2.3 0.8 3.1 1.6 1.5 0.5 1.0 17.3 17.3 7.7 1.8 2.6 6.1 1.5 2.9 5.4 1.2 2.9 5.3 1.0 2.9 5.6 1.0 3.3 4.6 0.8 4.1 98.0 416.7 20.0 123.9 514.8 22.0 139.9 628.2 22.0 144.0 734.2 21.8 135.0 795.8 25.0 164.3 936.5 31.0 1.6 0.2 1.4 0.4 89.5 1.7 0.5 1.8 0.4 81.2 1.8 0.8 2.3 0.6 73.2 2.9 1.5 2.7 0.6 62.7 4.9 2.4 4.3 0.9 60.0 5.8 2.4 3.3 0.8 65.0 38.8 73.8 12.6 8.1 40.8 74.8 14.2 9.1 38.5 77.4 12.4 8.4 35.3 77.4 12.6 9.3 35.2 76.7 12.3 9.3 34.6 76.0 11.8 9.3 3.3 42.3 1.4 25.8 3.2 39.4 1.4 26.6 3.6 41.3 1.3 24.4 3.3 39.7 1.2 21.1 3.2 41.3 0.9 16.3 3.3 40.0 1.0 17.3 FY09 FY10 FY11 FY12 FY13E FY14E

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Punjab National Bank | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Punjab National Bank No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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