3 November 2017

2QFY18 Results Update | Sector: Financials

Punjab National Bank

BSE SENSEX S&P CNX
33,686 10,453
CMP: INR207 TP: INR250 (+21%) Buy
Bloomberg PNB IN PPoP surprises positively; asset quality improves sequentially
Equity Shares (m) 2,128  PNB reported PPoP of INR32.8b (+2%/-1% QoQ/YoY; 10% beat). Lower-
M.Cap.(INRb)/(USDb) 440.5/6.8 than-estimated non-core income was compensated by a 10% beat on
52-Week Range (INR) 232/112 operating expenses. Provisions of INR24.4b (in-line) led to PAT of INR5.6b
1, 6, 12 Rel. Per (%) 53/6/33
(+63% QoQ on a low base), which beat estimate by 35%.
Avg Val, INRm 1801
 Slippages moderated to INR34.6b (3.5% annualized), of which 30% is fresh
Free float (%) 34.1
debit to existing NPA v/s 10% for 1QFY18. Total net stressed loans
(including net NPA and standard restructured assets) stood at 11% of total
Financials & Valuations (INR b)
Y/E March 2018E 2019E 2020E
advances (11.4% in 1Q).
NII 159.5 179.7 209.8
 Domestic NIM improved 8bp QoQ to 2.64%, with a 4bp decline in cost of
OP 125.9 133.6 155.9 funds and a 3bp increase in yield on advances. Loan book grew 3%/4%
NP 18.2 28.8 34.1 QoQ/YoY, impacted by muted growth in the corporate segment. Retail
NIM (%) 2.3 2.4 2.5 loans grew 5%/16% QoQ/YoY, driven by 34% YoY growth in housing loans.
EPS (INR) 8.5 13.5 16.0  Other highlights: a) CASA deposits grew 19% YoY, driven by 21% YoY growth
EPS Gr. (%) 37.0 58.5 18.5 in SA deposits; average CASA ratio stood at ~44.4% v/s 44% a quarter ago
BV/Sh. (INR) 186 197 211 and 42.1% a year ago. b) Fee income growth was strong at 15% YoY, helped
ABV/Sh. (INR) 80 117 157 by better retail fees. c) CET1 ratio of ~7.67% remains a concern –
RoE (%) 4.7 7.1 7.9 management is looking to raise capital in FY18.
RoA (%) 0.2 0.4 0.4
 Valuation view: Significant stress is being recognized over the last several
Payout (%) 17.4 17.4 17.4
quarters, and now resolution (especially under IBC) in key sectors like steel,
P/E(X) 24.3 15.3 12.9
power, construction and roads remains a key for upgrades and recoveries.
P/BV (X) 1.1 1.0 1.0
Investments in key ventures add ~23% to overall market cap. We have
P/ABV (X) 2.60 1.77 1.32
Div. Yield (%) 0.6 1.0 1.2
increased FY18/FY19 PAT estimates by 46%/23% to factor in improvement
in margins and controlled opex. Due to low RoAs (~0.25%), even a 10bp
change in the NIM (30%) and credit cost (20%) can impact profitability
significantly. We maintain Buy with an SOTP-based target price of INR250
(v/s our earlier TP of INR184, as we increase core bank valuation multiple to
1x Sept BV from 0.7x June 19 BV in view of improved profitability).

Research Analyst: Nitin Aggarwal (Nitin.Aggarwal@MotilalOswal.com); +91 22 3982 5540 | Anirvan Sarkar (Anirvan.Sarkar@MotilalOswal.com); +91 22 3982 5505
Piran Engineer (Piran.Engineer@MotilalOswal.com); +91 22 3980 4393 | Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Punjab National Bank

Exhibit 1: Quarterly Performance: Actual v/s estimates (INR m)

Y/E MARCH 2QFY18A 2QFY18E Var. (%) Comments
Interest Income 122993 1,23,222 0
Interest Expense 82841 84,054 -1
Net Interest Income 40,152 39,167 3
Marginal beat led by cost of funds beat
% Change (Y-o-Y) 3 1

19,060 22,106 -14 Lower than expected other income

Other Income
Net Income 59,212 61,273 -3

26,421 31,332 -16 19% beat on employee expenses

Operating Expenses
Operating Profit 32,791 29,941 10
PPoP beat led by opex
% Change (Y-o-Y) -1 -10
Other Provisions 24,408 24,000 2
Profit before Tax 8,383 5,941 41
Tax Provisions 2,777 1,782 56
Net Profit 5,606 4,159 35
Opex beat leads to PAT beat
% Change (Y-o-Y) 2 -24.3
Source: MOSL, Company

Asset quality improves as slippages moderate sequentially

Elevated write-offs lead to
 Absolute GNPA/NNPA remained stable QoQ. In percentage terms, GNPA and
sequentially stable asset
quality NNPA were at 13.31% (-35bp QoQ) and 8.44% (-23bps QoQ). Calculated PCR was
largely stable at 40% (-9bp QoQ). PCR including technical write offs increased to
59.2% v/s 58.2% in 1QFY18. Credit costs increased 16bp QoQ to 2.7%.
 Slippages moderated significantly (-48% QoQ) to INR34.6b as the base quarter
had high slippages from the restructured book. However, recoveries and
upgrades moderated 50% QoQ (INR13.3b), but write-offs soared 42% QoQ,
leading to GNPA remaining stable sequentially
 OSRL decreased 5% QoQ to INR104.6b. Total net stressed loans (NNPA and
OSRL) stood at 11% of total advances, down 40bp from 11.4% in 1Q

Retail book continues to Loan growth driven by retail, both global and domestic margins improve
drive loan book growth sequentially
 The bank recorded 4%/3% QoQ/YoY growth in advances driven by 5%/16%
QoQ/YoY growth in retail loans. Within retail, housing showed the strongest
growth at 19%/34% QoQ/YoY while vehicle loans and education loans also
showed strong growth of 18% and 12% YoY respectively
 Yield on funds improved 3bps to 6.53% and cost of funds declined 4bps to
4.40%.
 Yield on loans improved 3bps QoQ to 7.94% with easing of interest income
reversals.

Other highlights
CASA deposits continue to
 Operating expenses declined 11%/11% QoQ/YoY driven by 18%/19% decline in
register healthy growth
driven by robust SA growth employee expenses.
 CASA deposits grew 18.8% YoY (2.1% QoQ) led by strong growth in SA deposits
(+20.9%/+3% QoQ/YoY). Domestic CASA ratio stood at 44.4% (v/s 44% in
1QFY18). Average CASA ratio for 1HFY18 improved to 42.9% v/s 41.7% in
2HFY17 (+114bp QoQ).

3 November 2017 2
 Punjab National Bank

Valuation and view

Maintain Buy with an SOTP
of INR250 (1.0x Sept 2019
BV) and INR47/share (post
holdco discount of 20%) for
other ventures
 PNB remains highly levered to resolution of policy bottlenecks and improvement
in economic growth. Significant stress has been recognized over the last three
years (GNPA% at 13.7% (post write off of 3.5% of book) vs. 6.6% as of FY15) and
OSRL has also come off sharply to 2.8% vs. 4.9% a year ago. Concentration of
Infra (incl. power) and Iron and Steel very high in stress loans (50%+) and any
upgrade in these segments can lead to significant upgrade in earnings.
 Bank has built up excess liquidity in the balance sheet to take advantage of fall
in interest rates. CD ratio has moderated to ~63% from 75% in FY16. With asset
reallocation and healthy CASA growth we expect improvement in margins in the
ensuing quarters.
 While CET1 of ~8% remains a worry, mgmt. guided for capital raise of INR30b in
the ensuing quarter which will improve CET1 by ~100bp. Further, focus on
growth in low risk segment to provide cushion.
 We have increased FY18/FY19 PAT estimates by 46%/23% to factor in
improvement in margins and controlled opex. Due to low ROAs (~0.25%), even
10bp change in NIMs (30%) and Credit cost (20%) to profitability is very high. We
expect near term earnings volatility to continue till clear picture emerge for
asset quality. While the near term RoA/RoE are expected to be moderate
(FY18E/FY19E RoA at 0.25-0.4% and RoE at ~7-8%), earnings have significant
sensitivity to asset quality. Resolution of issues in Steel, Textiles and Infra
segment can lead to significant earnings upgrade. On an average on the IBC
cases shortfall is 8-10%.
 Investments into PNB housing, MET life, ICRA, UTIMF etc are adding significant
value to the bank. We value these investments at INR124b (INR58/share) and
add INR47/share (post 20% Holdco discount) for FY19 in SOTP. We value the
core business at 1.0x Sept 2019E BV (based on RI, slight increase over our earlier
multiple of 0.7x June 19 BV). Key assumptions for RI model are a) Cost of equity
14% b) Terminal growth of 5% and c) average CAGR over FY21-31 of ~13%.
Maintain Buy.

Exhibit 2: SOTP valuation (FY19 based)

Entity value Value for Value Per
Company Stake Rationale
(INR B) PNB (INR b) Share (INR)
PNB Housing 237 39.0 92.5 43 Based on CMP
Metlife 60 30.0 18.0 8
UTI MF 61 18.5 11.2 5 4.3% of the AUM
Principal PNB 3 21.4 0.6 0 4.6% of AUM
ICRA 40 4.3 1.7 1 Based on CMP
Value of ventures 124 58
Less: 20% Holdco dis 25 12
Value of investments (A) 99 47
Banking Business (B) 433 204 RI model; 1.0x Sept 19 BV
Total (A+B) 533 250
Market Cap 440 207
Upside 21 21
Source: MOSL, Company

3 November 2017 3
 Punjab National Bank

Exhibit 3: We increase estimates by 46%/23% for FY18/19

Old Est. Rev. Est. Chg. (%)
INR B
FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20
Net Interest Income 158.1 173.6 199.9 159.5 179.7 209.8 0.9 3.5 5.0
Other Income 88.5 91.7 102.0 88.5 91.6 101.8 0.0 -0.1 -0.2
Total Income 246.7 265.3 301.9 248.1 271.3 311.6 0.6 2.3 3.2
Operating Expenses 130.5 146.1 163.8 122.1 137.7 155.7 -6.4 -5.8 -4.9
Operating Profit 116.1 119.1 138.1 125.9 133.6 155.9 8.4 12.1 12.9
Provisions 96.2 83.6 94.5 98.0 90.0 104.2 1.8 7.6 10.3
PBT 19.9 35.5 43.6 27.9 43.6 51.6 40.4 22.7 18.5
Tax 7.5 12.1 14.8 9.8 14.8 17.6 31.1 22.7 18.5
PAT 12.4 23.5 28.8 18.2 28.8 34.1 46.0 22.7 18.5
Loans 4,363 4,886 5,619 4,489 4,982 5,730 2.9 2.0 2.0
Deposits 6,466 7,371 8,587 6,528 7,377 8,446 1.0 0.1 -1.6
Margins (%) 2.34 2.38 2.41 2.34 2.43 2.50
Credit Cost (%) 2.00 1.60 1.60 2.00 1.70 1.75
RoA (%) 0.17 0.30 0.32 0.25 0.36 0.38
RoE (%) 3.2 5.9 6.8 4.7 7.1 7.9
Source: MOSL, Company

Exhibit 4: One year forward P/BV Exhibit 5: One year forward P/E
P/B (x) Avg (x) Max (x) P/E (x) Avg (x) Max (x)
Min (x) +1SD -1SD Min (x) +1SD -1SD
2.3 56.5
1.8 44.9
1.8 42.5
1.4
1.3 1.0 28.5
22.2
1.0
17.1
0.8 14.5 9.9
0.4
0.7 2.7
0.3 0.5 2.8
Apr-10

Apr-15

Apr-10

Apr-15
Oct-07

Jan-09

Oct-12

Jan-14

Oct-17

Oct-07

Jan-09

Oct-12

Jan-14

Oct-17
Jul-11

Jul-16

Jul-11

Jul-16
Source: MOSL, Company Source: MOSL, Company

3 November 2017 4
 Punjab National Bank

Exhibit 6: DuPont Analysis – Highly levered to economic conditions – expect RoAs to remain subdued but rise gradually
FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E
Net Interest Income 3.21 3.17 3.14 2.87 2.41 2.16 2.17 2.26 2.35
Fee income 0.61 0.53 0.54 0.52 0.48 0.51 0.55 0.59 0.60
Fee to core income 16.1 14.4 14.6 15.4 16.7 19.0 20.2 20.6 20.3
Core Operating Income 3.82 3.70 3.67 3.39 2.89 2.67 2.72 2.85 2.94
Operating Expenses 1.67 1.74 1.81 1.82 1.57 1.35 1.66 1.73 1.74
Cost to Core Income Ratio 43.8 47.1 49.4 53.6 54.2 50.7 61.1 60.9 59.1
Employees 1.13 1.21 1.26 1.27 1.01 0.78 1.11 1.14 1.14
Emp cost to Opex (%) 67.45 69.50 69.72 69.93 64.44 57.79 66.62 65.95 65.37
Others 0.54 0.53 0.55 0.55 0.56 0.57 0.55 0.59 0.60
Core operating Profits 2.15 1.96 1.86 1.57 1.32 1.32 1.06 1.11 1.20
Non Interest income 1.00 0.90 0.89 1.02 1.08 1.29 1.20 1.15 1.14
Trading and others 0.39 0.37 0.35 0.50 0.60 0.78 0.65 0.57 0.54
Operating Profits 2.54 2.33 2.21 2.07 1.92 2.10 1.71 1.68 1.74
Provisions 0.86 0.94 1.30 1.39 2.83 1.81 1.33 1.13 1.17
NPA 0.57 0.71 0.88 1.38 2.91 1.83 1.18 1.01 1.05
Othes 0.28 0.22 0.42 0.00 -0.08 -0.02 0.15 0.12 0.12
PBT 1.68 1.39 0.91 0.69 -0.90 0.29 0.38 0.55 0.58
Tax 0.51 0.38 0.26 0.16 -0.28 0.10 0.13 0.19 0.20
Tax Rate 30.6 27.2 28.7 22.6 30.7 34.1 35.0 34.0 34.0
RoA 1.17 1.01 0.65 0.53 -0.63 0.19 0.25 0.36 0.38
Leverage (x) 18.0 16.3 15.7 16.0 17.4 18.9 19.0 19.5 20.6
RoE 21.05 16.48 10.18 8.50 -10.88 3.61 4.68 7.06 7.85

Y/E MARCH 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18
Net Interest Income 2.76 2.57 1.68 2.25 2.35 2.16 2.05 2.13 2.20
Fee income 0.46 0.44 0.49 0.55 0.45 0.53 0.54 0.59 0.47
Core Income 3.22 3.01 2.18 2.80 2.80 2.68 2.59 2.73 2.67
Operating Expenses 1.75 1.79 1.21 1.69 1.79 1.79 0.31 1.64 1.45
Employee cost 1.20 1.24 0.61 1.15 1.19 1.21 -0.31 1.07 0.87
Others 0.55 0.55 0.60 0.53 0.60 0.57 0.62 0.57 0.58
Core operating Profits 1.47 1.21 0.97 1.11 1.01 0.90 2.28 1.08 1.22
Trading and others 0.41 0.61 1.00 0.88 1.00 0.93 1.19 0.70 0.58
Operating Profits 1.88 1.82 1.96 1.99 2.01 1.82 3.48 1.78 1.80
Provisions 1.20 2.36 6.37 1.66 1.54 1.70 3.21 1.44 1.34
NPAs 1.30 2.35 6.92 2.20 1.35 1.94 2.74 1.42 1.48
Others -0.10 0.01 -0.54 -0.54 0.19 -0.25 0.47 0.03 -0.14
PBT 0.68 -0.54 -4.41 0.33 0.47 0.13 0.27 0.34 0.46
Tax 0.28 -0.57 -1.15 0.14 0.14 0.01 0.12 0.15 0.15
Tax Rate (%) 41.2 105.9 26.0 42.9 29.4 5.3 45.2 43.6 33.1
RoA 0.40 0.03 -3.26 0.19 0.33 0.12 0.15 0.19 0.31
Leverage (x) 15.3 15.2 16.3 16.9 16.1 16.4 17.0 17.1 16.9
RoE 6.06 0.48 NM 3.15 5.37 1.96 2.49 3.26 5.20

3 November 2017 5
 6
2QFY14 15 2.0 2QFY14 3.5 1HFY14 3,139

10
3QFY14 5 0.6 3QFY14 3.6 9MFY14 3,261
4QFY14 24 3.1 4QFY14 3.2 FY14 3,493

3 November 2017
1QFY15 19 2.6 1QFY15 3.4 1QFY15 3,475

13 14 14
2QFY15 23 2.9 2QFY15 3.2 1HFY15 3,571
3QFY15 39 4.8 9MFY15 3,625
Story in charts

3QFY15 3.2
4QFY15 47 5.3 4QFY15 2.8 FY15 3,805
1QFY16 10 1.2 1QFY16 2.9 1QFY16 3,809 11 9 10

Net Slippages (INR b)

Loans (INR b)

2QFY16 16 1.7 2QFY16 3.0 1HFY16 3,810 7 8

3QFY16 111 12.3 3QFY16 2.8 9MFY16 3,929

8

4QFY16 229 24.1 4QFY16 1.8 FY16 4,123

3

1QFY17 32 3.4 1QFY17 2.5 1QFY17 3,916

Exhibit 11: Slippages declined sequentially

Exhibit 7: Loan growth stayed subdued YoY

2QFY17 14 1.5 2QFY17 2.5 1HFY17 3,937

-2

9MFY17 3,857
YoY Gr. (%)

3QFY17 17 1.7 3QFY17 2.3

2

4QFY17 2.2 FY17 4,195

4QFY17 24 2.3
2

Exhibit 9: Global NIMs improved 6 bp QoQ (-16bp YoY)

1QFY18 2.3 1QFY18 3,997

Net Slipapge Ratio (%)

1QFY18 39 4.0
4

2QFY18 2.4 1HFY18 4,103

2QFY18 21 2.2

Source: MOSL, Company

Source: MOSL, Company
Source: MOSL, Company
1

2QFY14 1.3 1HFY14 4,057

39
6.5
1QFY16
9

3QFY14 1.4 4.1 9MFY14 4,206

4QFY14 2.1 6.4 FY14 4,514
1HFY16 39
4.0
15 12

1QFY15 1.6 1QFY15 4,449

8.5
9MFY16
33

2QFY15 1.9 5.9 1HFY15 4,735

GNPA (%)
17 15

3QFY15 1.9 12.9 9MFY15 4,841

FY16
37
11

4QFY15 3.5 8.6 FY15 5,014

16

1QFY16 1.4 13.8 1QFY16 5,177

1QFY17
37
Deposits (INR b)

9.2
1HFY16 5,399
Exhibit 8: Stable deposit growth

2QFY16 2.1
13.6
14 13

9MFY16 5,485
37

3QFY16 3.9 1HFY17

9.1
NNPA (%)
10

4QFY16 11.3 FY16 5,531

13.7
9MFY17
37

1QFY17 3.6 9.1 1QFY17 5,540

7 6

2QFY17 2.3 12.5 1HFY17 5,749

FY17
41

7.8 9MFY17 6,122

3QFY17 3.5
13.7
YoY Growth (%)

FY17 6,217
40

Exhibit 12: Credit costs increased 16bp QoQ to 2.7%

4QFY17 4.9 1QFY18

8.7
Exhibit 10: GNPA/PCR improved in % terms QoQ/YoY;

1QFY18 6,256
PCR (cal %)

1QFY18 2.5 13.3

40

1HFY18
12 12 13 11

8.4 1HFY18 6,362

2QFY18 2.7

6
Source: MOSL, Company
Source: MOSL, Company
Source: MOSL, Company
Punjab National Bank
 Punjab National Bank

Exhibit 13: Quarterly Snapshot

FY16 FY17 FY18 Variation (%)
INR m 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q QoQ YoY
Profit and Loss
Interest Income 120,347 123,450 122,206 108,240 115,749 118,304 119,842 118,865 121,364 122,993 1 4
Loans 89,081 90,636 88,814 75,925 85,099 84,673 82,629 77,187 81,448 80,582 -1 -5
Investment 29,058 30,286 31,192 29,801 27,852 29,093 33,721 35,105 34,036 35,270 4 21
Others 2,208 2,529 2,200 2,514 2,799 4,537 3,491 6,573 5,879 7,141 21 57
Interest Expenses 79,322 80,231 81,010 80,563 78,759 79,505 82,534 82,030 82,812 82,841 0 4
Net Interest Income 41,025 43,220 41,196 27,677 36,990 38,799 37,308 36,835 38,551 40,152 4 3
Other Income 13,974 13,569 16,706 24,522 23,551 23,879 25,135 31,028 23,318 19,060 -18 -20
Forex Income 940 790 1,450 1,090 1,260 1,650 1,450 1,460 2,680 5,760 115 249
Recoveries 2,170 2,360 5,190 13,260 7,270 8,000 9,370 9,815 1,100 -2,191 -299 -127
Core Fees 8,494 7,139 6,986 8,122 9,011 7,349 9,095 9,660 10,718 8,481 -21 15
Total Income 54,998 56,789 57,902 52,199 60,541 62,678 62,443 67,863 61,869 59,212 -4 -6
Operating Expenses 23,677 27,404 28,724 19,920 27,794 29,557 30,897 5,545 29,696 26,421 -11 -11
Employee 15,496 18,776 19,912 10,076 18,998 19,672 21,021 -5,484 19,373 15,900 -18 -19
Others 8,181 8,628 8,812 9,845 8,797 9,886 9,876 11,029 10,323 10,521 2 6
Operating Profits 31,321 29,385 29,179 32,279 32,746 33,120 31,546 62,318 32,173 32,791 2 -1
1,04,85
Provisions 18,114 18,821 37,755 2 27,384 25,338 29,359 57,535 26,087 24,408 -6 -4
1,13,80
NPA provisions 12,910 20,310 37,670 0 36,200 22,180 33,630 49,100 25,600 26,940 5 21
Provisions on Invst. 3,750 -730 1,230 -800 -2,200 3,680 1,300 2,080 2,410 840 -65 -77
Others 1,454 -759 -1,145 -8,148 -6,616 -522 -5,571 6,355 -1,923 -3,372 75 546
PBT 13,207 10,564 -8,577 -72,574 5,362 7,783 2,187 4,783 6,086 8,383 38 8
Taxes 6,000 4,354 -9,087 -18,902 2,299 2,289 116 2,164 2,652 2,777 5 21
PAT 7,207 6,210 510 -53,671 3,064 5,494 2,072 2,619 3,434 5,606 63 2
Ratios (%)
Fees to Total Income 15.4 12.6 12.1 15.6 14.9 11.7 14.6 14.2 17.3 14.3
Cost to Core Income 47.8 54.4 59.6 55.6 60.4 64.0 66.6 11.9 60.3 54.3
Tax Rate 45.4 41.2 105.9 26.0 42.9 29.4 5.3 45.2 43.6 33.1
CASA (Cal) 35.1 36.0 36.1 37.2 36.7 37.6 42.9 41.8 40.2 40.4
Loan/Deposit 73.6 70.6 71.6 74.6 70.7 68.5 63.0 67.5 63.9 64.5
Yield, cost movement (%)
Yield on loans 9.6 9.8 9.5 NA 8.5 8.5 8.3 7.8 7.9 7.9 3 -60
Yield On Investments 7.9 8.0 7.9 8.0 7.9 7.8 7.6 7.4 0.0 0.0 0 -783
Yield on Funds 7.7 7.7 7.4 NA 6.9 6.9 6.7 6.5 6.5 6.5 3 -32
Cost of Deposits 6.0 6.0 5.8 5.7 5.5 5.4 5.3 5.2 5.1 5.0 -9 -35
Cost of Funds 5.1 5.0 4.9 NA 4.7 4.6 4.6 4.5 4.4 4.4 -4 -20
Spreads 2.6 2.7 2.5 NA 2.2 2.3 2.1 2.0 2.1 2.1 7 -12
Margins 2.9 3.0 2.8 1.8 2.5 2.5 2.3 2.2 2.3 2.4 3 -6
Franchise
Branches 6,594 6,635 6,692 6,760 6,809 6,845 6,889 6,937 6,946 6,940
ATM 8,437 8,622 8,884 9,200 9,669 9,841 9,997 10,681 10,502 9,753
Source: MOSL, Company

3 November 2017 7
 Punjab National Bank

Exhibit 14: Quarterly Snapshot continued

FY16 FY17 FY18 Variation (%)
INR b 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q QoQ YoY
Balance Sheet
Loans 3,809 3,810 3,929 4,123 3,916 3,937 3,857 4,195 3,997 4,103 3 4
Investments 1,551 1,677 1,651 1,578 1,492 1,715 2,218 1,867 2,025 2,106 4 23
Assets 6,178 6,337 6,486 6,674 6,490 6,701 7,140 7,203 7,252 7,321 1 9
Deposits 5,177 5,399 5,485 5,531 5,540 5,749 6,122 6,217 6,256 6,362 2 11
Deposits Break Up
Core Deposits 0 0 0 0 0 0 0 0 0 0
% of total Deposits 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other Deposits 5,177 5,399 5,485 5,531 5,540 5,749 6,122 6,217 6,256 6,362 2 11
% of total Deposits 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Deposits Break Up
CASA Deposits 1,815 1,945 1,979 2,056 2,035 2,162 2,628 2,600 2,516 2,569 2 19
% of total Deposits 35.1 36.0 36.1 37.2 36.7 37.6 42.9 41.8 40.2 40.4 0 7
Savings 1,496 1,577 1,615 1,694 1,711 1,801 2,220 2,142 2,115 2,178 3 21
% of total Deposits 28.9 29.2 29.4 30.6 30.9 31.3 36.3 34.4 33.8 34.2 1 9
Current 319 369 365 362 324 361 408 459 400 391 -2 8
% of total Deposits 6.2 6.8 6.6 6.5 5.8 6.3 6.7 7.4 6.4 6.1 -4 -2
Term Deposits 3,362 3,454 3,506 3,475 3,504 3,587 3,494 3,617 3,741 3,794 1 6
% of total Deposits 64.9 64.0 63.9 62.8 63.3 62.4 57.1 58.2 59.8 59.6 0 -4
Loan Break Up
Agriculture 573 581 593 642 630 635 617 669 656 675 3 6
SME Loans 485 479 506 543 0 0 789 816 784 793 1 NA
Retail Loans 489 504 544 578 586 614 610 660 679 712 5 16
Other loans 2,261 2,245 2,287 2,361 2,700 2,688 1,840 2,050 1,879 1,923 2 -28
Asset Quality
Movement of NPA -Quarterly
Opening 257.0 254.0 249.5 343.4 558.2 566.6 564.7 556.3 553.7 577.2
Additions 33.8 26.1 127.1 235.5 92.3 62.0 56.6 13.3 66.5 34.6
Deductions 36.8 30.7 33.2 20.7 83.9 63.9 65.0 15.8 43.0 35.5
Cash Recovery 11.4 7.4 14.8 9.1 48.3 28.8 24.1 5.6 18.6 9.6
Upgradation 12.1 3.2 0.9 -2.5 11.8 18.9 15.3 -16.2 8.9 3.7
Write offs 13.2 20.0 17.5 14.1 23.9 16.2 25.5 26.5 15.6 22.2
Closing 254.0 249.5 343.4 558.2 566.6 564.7 556.3 553.7 577.2 576.3
Net Slippages 10.3 15.5 111.4 228.9 32.2 14.3 17.1 23.9 39.1 21.3 -45 49
Net Slippage Ratio (%) 1.2 1.7 12.3 24.1 3.4 1.5 1.7 2.3 4.0 2.2 -46 44
Credit cost (%) 1.4 2.1 3.9 11.3 3.6 2.3 2.8 4.9 2.5 2.7 6 18
Source: MOSL, Company

3 November 2017 8
 Punjab National Bank

Exhibit 15: Valuation Matrix

Rating CMP Mcap EPS (INR) P/E (x) P/BV (x) RoA (%) RoE (%)
66
FY19E (INR) (USDb) FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E
ICICIBC* Buy 316 31.1 13.6 17.0 16.7 12.5 1.75 1.52 1.07 1.20 8.8 10.5
HDFCB Buy 1,831 72.2 68.7 84.7 26.7 21.6 4.80 4.07 1.86 1.92 18.8 20.4
AXSB Neutral 540 19.8 18.1 29.9 29.8 18.0 2.20 1.99 0.67 0.97 7.6 11.6
KMB* Buy 1,016 29.1 32.1 41.6 31.7 24.4 4.37 3.73 1.77 1.95 14.8 16.5
YES Buy 326 11.2 17.8 23.3 18.3 14.0 2.97 2.52 1.70 1.82 17.3 19.5
IIB Buy 1,675 15.2 60.9 78.6 27.5 21.3 4.33 3.69 1.82 1.89 16.9 19.0
IDFC Bk Neutral 59 3.3 2.8 3.2 21.2 18.2 1.30 1.23 0.74 0.71 6.3 6.9
FB Buy 116 3.2 5.5 6.6 20.9 17.4 1.83 1.67 0.81 0.86 9.6 10.0
DCBB Neutral 181 0.9 8.5 10.5 21.3 17.3 2.16 1.93 0.98 1.00 11.5 11.8
JKBK Buy 81 0.7 4.1 8.7 19.5 9.4 0.77 0.72 0.27 0.51 4.0 8.0
SIB Buy 32 0.6 1.9 3.8 17.0 8.4 1.17 1.06 0.42 0.75 6.7 12.6
Equitas Buy 147 0.8 1.7 5.7 84.6 25.5 2.17 2.01 0.59 1.57 2.6 8.2
RBL Buy 519 3.0 16.4 23.0 31.8 22.5 3.27 2.92 1.22 1.32 12.4 13.7
Private Aggregate
SBIN (cons)* Buy 325 42.7 14.6 26.8 20.1 10.8 1.29 1.16 0.36 0.60 7.0 11.4
PNB Buy 207 6.6 5.8 11.0 35.5 18.8 1.13 1.08 0.17 0.30 3.2 5.9
BOI Neutral 202 3.2 -11.2 6.6 -17.9 30.5 0.93 0.93 -0.19 0.10 -5.2 3.0
BOB Buy 172 6.2 9.5 20.8 18.0 8.3 1.08 0.98 0.31 0.61 6.1 12.4
CBK Neutral 404 3.5 16.1 30.3 25.0 13.3 0.83 0.79 0.16 0.26 3.4 6.1
UNBK Neutral 173 1.9 9.0 19.1 19.2 9.1 0.57 0.54 0.14 0.27 3.0 6.1
OBC Neutral 141 0.8 17.1 21.4 8.3 6.6 0.37 0.35 0.22 0.26 4.6 5.4
INBK Buy 347 2.4 34.4 38.3 10.1 9.1 1.06 0.97 0.73 0.72 10.9 11.2
Public Aggregate
Banks Aggregate
HDFC* Buy 1,775 42.7 41.4 47.2 25.5 20.0 4.64 3.30 1.85 1.85 19.3 18.6
LICHF Neutral 609 4.7 41.0 46.5 14.8 13.1 2.41 2.10 1.42 1.42 17.4 17.2
IHFL Buy 1,219 8.1 83.6 105.1 14.6 11.6 3.80 3.35 3.16 3.09 27.6 30.7
PNBHF Buy 1,424 3.7 52.5 66.5 27.1 21.4 3.84 3.36 1.66 1.51 15.0 16.7
GRHF Neutral 500 2.8 9.9 12.0 50.6 41.5 15.09 12.38 2.40 2.40 32.8 32.8
REPCO Buy 613 0.6 33.7 38.4 18.2 16.0 2.89 2.48 2.18 2.14 17.1 16.7
DEWH Buy 666 3.1 37.6 46.0 17.7 14.5 2.36 2.08 1.23 1.28 14.1 15.3
Housing Finance
SHTF Buy 1,301 4.2 80.6 106.2 16.1 12.3 2.32 2.01 2.66 3.10 15.1 17.4
MMFS Buy 433 3.8 14.2 19.1 30.6 22.7 3.52 3.23 1.75 2.01 11.9 14.8
BAF Buy 1,835 16.0 45.7 63.7 40.1 28.8 6.44 5.41 3.45 3.55 20.2 20.4
CIFC Buy 1,240 3.0 59.2 70.4 20.9 17.6 3.78 3.18 3.03 3.09 19.6 19.6
SCUF Buy 2,248 2.3 118.3 155.3 19.0 14.5 2.62 2.27 3.34 3.84 14.6 16.8
LTFH Buy 199 5.7 6.9 10.4 28.6 19.1 3.92 3.34 1.60 2.06 14.9 18.9
MUTH Buy 499 3.2 38.7 44.4 12.9 11.2 2.59 2.21 4.82 4.94 21.8 21.2
CAFL Buy 736 1.1 32.8 43.7 22.4 16.8 2.79 2.43 1.73 1.84 13.2 15.4
SKSM Under Review 994 2.1 30.3 47.2 32.8 21.0 4.55 3.66 3.24 3.43 15.3 19.3
Asset Finance
NBFC Aggregate
Financials
UR=Under Review*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in
subsidiaries
Source: MOSL

3 November 2017 9
 Punjab National Bank

Financials and Valuations

Income Statement (INR Million)
Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Interest Income 3,64,761 4,18,858 4,32,233 4,63,154 4,74,244 4,72,760 5,00,345 5,38,449 6,13,376
Interest Expense 2,30,617 2,70,368 2,70,773 2,97,598 3,21,126 3,22,828 3,40,803 3,58,754 4,03,621
Net Interest Income 1,34,144 1,48,490 1,61,460 1,65,556 1,53,118 1,49,932 1,59,542 1,79,695 2,09,755
Change (%) 13.6 10.7 8.7 2.5 -7.5 -2.1 6.4 12.6 16.7
Non Interest Income 42,026 42,234 45,767 58,907 68,770 89,514 88,540 91,589 1,01,837
Net Income 1,76,170 1,90,724 2,07,227 2,24,463 2,21,888 2,39,445 2,48,081 2,71,285 3,11,592
Change (%) 14.2 8.3 8.7 8.3 -1.1 7.9 3.6 9.4 14.9
Operating Expenses 70,028 81,651 93,382 1,04,915 99,725 93,794 1,22,147 1,37,715 1,55,733
Pre Provision Profits 1,06,143 1,09,074 1,13,845 1,19,548 1,22,163 1,45,652 1,25,934 1,33,569 1,55,859
Change (%) 17.2 2.8 4.4 5.0 2.2 19.2 -13.5 6.1 16.7
Provisions (excl tax) 35,772 43,856 66,939 79,975 1,79,542 1,25,536 98,010 89,978 1,04,219
PBT 70,370 65,218 46,905 39,573 -57,379 20,115 27,925 43,592 51,640
Tax 21,528 17,741 13,479 8,957 -17,635 6,867 9,774 14,821 17,558
Tax Rate (%) 30.6 27.2 28.7 22.6 30.7 34.1 35.0 34.0 34.0
PAT 48,842 47,477 33,426 30,616 -39,744 13,248 18,151 28,770 34,082
Change (%) 10.2 -2.8 -29.6 -8.4 -229.8 -133.3 37.0 58.5 18.5
Equity Dividend (Incl tax) 8,672 11,166 4,236 7,377 0 0 2,723 4,316 5,112
Core PPP* 97,584 99,995 1,03,201 99,150 91,933 1,00,197 89,261 1,00,829 1,20,845
Change (%) 18.4 2.5 3.2 -3.9 -7.3 9.0 -10.9 13.0 19.9
*Core PPP is (NII+Fee income-Opex)

Balance Sheet (INR Million)

Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Share Capital 3,392 3,535 3,621 3,709 3,927 4,256 4,256 4,256 4,256
Equity Share Capital 3,392 3,535 3,621 3,709 3,927 4,256 4,256 4,256 4,256
Reserves & Surplus 2,74,762 3,23,234 3,55,332 3,87,086 3,79,174 4,14,214 4,28,642 4,52,097 4,80,067
Net Worth 2,78,154 3,26,769 3,58,953 3,90,795 3,83,101 4,18,470 4,32,898 4,56,353 4,84,323
Deposits 37,95,885 39,15,601 45,13,967 50,13,786 55,30,511 62,17,040 65,27,892 73,76,518 84,46,113
Change (%) 21.3 3.2 15.3 11.1 10.3 12.4 5.0 13.0 14.5
of which CASA Dep 13,41,293 15,33,443 17,28,721 18,37,805 20,55,830 26,00,160 29,90,184 34,38,712 39,54,518
Change (%) 11.5 14.3 12.7 6.3 11.9 26.5 15.0 15.0 15.0
Borrowings 3,72,643 3,96,209 4,80,344 4,56,705 5,97,552 4,07,633 3,70,543 3,33,693 3,34,693
Other Liabilities & Prov. 1,35,242 1,50,898 1,50,934 1,72,049 1,62,739 1,60,162 1,82,791 2,09,440 2,40,803
Total Liabilities 45,81,923 47,89,477 55,04,199 60,33,336 66,73,905 72,03,306 75,14,125 83,76,004 95,05,932
Current Assets 2,88,280 2,71,354 4,52,184 5,59,342 7,36,231 8,83,317 5,94,806 6,13,084 5,95,346
Investments 12,27,030 12,98,962 14,37,855 15,12,823 15,78,459 18,67,254 21,47,343 24,69,444 28,39,861
Change (%) 28.9 5.9 10.7 5.2 4.3 18.3 15.0 15.0 15.0
Loans 29,37,748 30,87,959 34,92,691 38,05,344 41,23,258 41,94,932 44,88,577 49,82,320 57,29,668
Change (%) 21.3 5.1 13.1 9.0 8.4 1.7 7.0 11.0 15.0
Fixed Assets 31,689 33,577 34,197 35,515 52,227 62,733 68,823 75,120 81,418
Other Assets 97,177 97,626 87,271 1,20,312 1,83,729 1,95,071 2,14,578 2,36,035 2,59,639
Total Assets 45,81,923 47,89,477 55,04,199 60,33,336 66,73,905 72,03,306 75,14,125 83,76,004 95,05,932

3 November 2017 10
 Punjab National Bank

Financials and Valuations

Asset Quality 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
GNPA (INR m) 87,196 1,34,658 1,88,808 2,56,956 5,58,191 5,53,711 5,55,935 4,21,963 3,02,217
NNPA (INR m) 44,542 72,365 99,170 1,53,965 3,54,226 3,27,021 3,22,417 2,42,942 1,64,466
GNPA Ratio 1.43 4.27 5.27 6.57 12.92 12.52 11.77 8.18 5.15
NNPA Ratio 1.52 2.34 2.84 4.05 8.59 7.80 7.18 4.88 2.87
Slippage Ratio 2.76 2.94 3.50 4.77 11.10 5.44 4.60 2.50 2.00
PCR (Excl Tech. write off) 48.9 46.3 47.5 40.1 35.6 40.9 42.0 42.4 45.6

Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets 9.5 9.6 9.0 8.6 8.0 7.3 7.3 7.3 7.3
Avg. Yield on loans 10.6 10.6 9.8 9.5 8.7 7.9 7.8 7.4 7.4
Avg. Yield on Investments 7.1 7.5 7.5 7.2 7.8 7.3 7.0 7.0 7.0
Avg. Cost-Int. Bear. Liab. 6.1 6.4 5.8 5.7 5.5 5.1 5.0 4.9 4.9
Avg. Cost of Deposits 6.2 6.6 6.0 5.8 5.7 5.1 4.9 4.7 4.7
Interest Spread 3.4 3.2 3.1 2.9 2.5 2.3 2.3 2.4 2.4
Net Interest Margin 3.5 3.4 3.3 3.1 2.6 2.3 2.3 2.4 2.5

Profitability Ratios (%)

RoE 21.1 16.5 10.2 8.5 -10.9 3.6 4.68 7.06 7.85
RoA 1.2 1.0 0.6 0.5 -0.6 0.2 0.25 0.36 0.38
Int. Expense/Int.Income 63.2 64.5 62.6 64.3 67.7 68.3 68.1 66.6 65.8
Fee Income/Net Income 17.9 16.1 16.0 15.7 15.8 17.1 19.6 20.5 20.4
Non Int. Inc./Net Income 23.9 22.1 22.1 26.2 31.0 37.4 35.7 33.8 32.7

Efficiency Ratios (%)

Cost/Income* 41.8 45.0 47.5 49.0 46.5 41.1 52.6 52.7 51.6
Empl. Cost/Op. Exps. 67.5 69.5 69.7 69.9 64.4 57.8 66.6 66.0 65.4
Busi. per Empl. (INR m) 98.9 108.5 114.1 123.2 130.5 136.9 142.3 150.2 165.2
NP per Empl. (INR lac) 7.9 7.5 5.1 4.5 -5.6 1.8 2.4 3.7 4.2
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio 77.4 78.9 77.4 75.9 74.6 67.5 68.8 67.5 67.8
CASA Ratio 35.3 39.2 38.3 36.7 37.2 41.8 45.8 46.6 46.8
Investment/Deposit Ratio 32.3 33.2 31.9 30.2 28.5 30.0 32.9 33.5 33.6
G-Sec/Investment Ratio 81.5 83.0 78.2 82.9 80.1 79.9 73.0 71.7 71.4
CAR 12.6 12.7 11.5 12.2 11.3 11.7 11.3 10.5 9.6
Tier 1 9.3 9.8 8.9 9.3 8.4 8.9 8.7 8.2 7.5
11.1 3.7
Valuation 21.3 13.4
Book Value (INR) 155 177 190 203 180 178 186 197 211
Change (%) 22.9 13.7 7.6 6.7 -11.2 -1.0 4.1 6.2 6.9
Price-BV (x) 1.3 1.2 1.1 1.0 1.1 1.2 1.1 1.0 1.0
Adjusted BV (INR) 137 148 152 145 54 71 80 117 157
Price-ABV (x) 1.5 1.4 1.4 1.4 3.8 2.9 2.6 1.8 1.3
EPS (INR) 28.8 26.9 18.5 16.5 -20.2 6.2 8.5 13.5 16.0
Change (%) 2.9 -6.7 -31.3 -10.6 NM NM 37.0 58.5 18.5
Price-Earnings (x) 7.2 7.7 11.2 12.5 -10.2 33.2 24.3 15.3 12.9
Dividend Per Share (INR) 4.4 5.4 2.0 3.3 0.0 0.0 1.3 2.0 2.4
Dividend Yield (%) 2.1 2.6 1.0 1.6 0.0 0.0 0.6 1.0 1.2
E: MOSL Estimates

3 November 2017 11
 Punjab National Bank

Corporate profile
Exhibit 1: Sensex rebased
Company description
Punjab National Bank (PNB) was incorporated in
1894 in Lahore. It is one of India’s largest
nationalized public sector banks in terms of
business and number of branches. As of December
2015, it had loan book size of INR3.9t and deposits
of INR5.5t. It has a wide distribution network having
pan-India presence with a total of 6,692 branches
and 8,884 ATMs. Government holds ~62% stake in
the bank.
Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%) Exhibit 3: Top holders

Sep-17 Jun-17 Sep-16 Holder Name % Holding
Promoter 65.9 65.0 65.0 LIC of India 12.2
DII 19.3 19.2 18.3 HDFC Trustee Co Ltd 4.4
FII 9.7 10.4 11.1 Lazard Asset Management LLC 2.6
Others 5.1 5.4 5.7
Note: FII Includes depository receipts Source: Capitaline
Source: Capitaline

Exhibit 4: Top management Exhibit 5: Directors

Name Designation Name Name
Usha Ananthasubramanian Managing Director & CEO Hiroo Mirchandani Sudhir Nayar
K Veera Brahmaji Rao Executive Director Rajiendra Mohan singh G P Khadelwal
R S Sangapure Executive Director Mahesh Baboo Gupta Anil Kumar Khachi
Sanjiv Sharan Executive Director Madnesh Kumar Mishra Rabi N Mishra
Balbir Singh Company Secretary

Source: Capitaline *Independent

Exhibit 6: Auditors Exhibit 7: MOSL forecast v/s consensus

Name Type EPS MOSL Consensus Variation
(INR) forecast forecast (%)
Chhajed & Doshi Statutory
FY18 8.5 9.7 -12.7
Hem Sandeep & Co Statutory
FY19 13.5 16.7 -19.2
R Devendra Kumar & Associates Statutory
FY20 16.0 22.2 -27.8
Shah Gupta & Co Statutory
Source: Bloomberg
SPMG & Co Statutory
Source: Capitaline

3 November 2017 12
 Punjab National Bank

NOTES

3 November 2017 13
Disclosures

Punjab National Bank

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Disclosure of Interest Statement Punjab National Bank
 Analyst ownership of the stock No
 Served as an officer, director or employee - No
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes

Regional Disclosures (outside India)

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In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:

Varun Kumar
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Motilal Oswal Securities Ltd

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