May 20, 2016 / 03:41 PM IST
Edelweiss's research report on PNB In Q4FY16, Punjab National Bank’s (PNB) profitability was hit by continued disappointment on asset quality. Slippages spiked to INR 235bn (24% versus run-rate of <6% in past 6 quarters) with GNPLs touching 12.9%. This resulted in slower revenue momentum (NII fell >27% YoY) with NIMs taking a knock due to higher interest income reversal. Loan growth, at 10% (albeit slower than trend), was better than peers with focus on granularity (small ticket size loans >57% of loans). Given weak RoE profile and elevated stress PNB is not preferred pick.
PNB’s performance was marred by dismal asset quality, leading to loss in FY16. Incorporating lower NIMs and lower growth, we lower FY17/18E EPS by 10%/9%. While the bank has relatively higher dilution risk at weak multiple, government’s assurance of capital support to leading PSU banks will cushion impact. Given weak RoE profile and elevated stress, PNB is not a preferred pick. But, valuations of 0.5x FY18E book after factoring in potential stress, focus on granularity and healthy liability franchise, we maintain ‘BUY/SP’ with TP of INR 120.
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