Buy Punjab National Bank; target Rs 1426: Dolat Capital
Dolat Capital is bullish on Punjab National Bank (PNB) and has recommended buy rating on the stock with a target price of Rs 1426 in its November 1, 2011 research report.
“Punjab National Bank’s (PNB) net interest income (NII) grew 16% YoY to Rs 34.5bn - 6% in Q2 FY12, higher than our estimates of Rs 32.5bn. Margins rose 11bps QoQ though, declined by 11bps YoY to 3.95%, compared to 3.84% in Q1 FY12 and 4.06% in Q2 FY11. In the quarter, other income grew by 24% to Rs 8.9bn on the back of 17% YoY growth in core fee income to Rs 5.5bn and sharp jump in FX gains. It reported operating profit of Rs 25bn (Dolat est: Rs 23.4bn).”
“PNB reported bottomline of Rs 12bn as against our estimates of Rs 11.8bn. Overall earning quality improved on the back of stable margin at elevated level, robust fee income and relatively lesser gross addition of NPLs compared to other PSU banks. In FY11-13, we expect PNB’s business to grow 20% CAGR on the back of 19.7% growth in deposits and 20.2% growth in credit book. We estimate PNB’s margin to drift down by 39bps and 9bps to 3.22% and 3.13% that in FY12 and FY13 respectively. We expect credit cost at an elevated level of 0.95% and 0.71% in FY12 and FY13 respectively, compared to 0.92% in FY11. During FY12-13, we estimate PNB’s RoAA and RoAE in the 1.2-1.3% and 21-23% ranges respectively.”
“Stability in margin at high level aids overall performance and lesser credit cost further enhances return ratios. We value PNB at Rs 1,426, at 1.71x adjusted book value FY13 and maintain our Buy rating on the stock. At current market price, the stock quotes at 1.5x and 1.2x ABV FY12 and FY13 respectively and at 3.0% dividend yield,” says Dolat Capital research report.
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