MOSL: PUNJAB NATIONAL BANK (Buy)- PPoP surprises positively-asset quality improves sequentially

​Punjab National bank:PPoP surprises positively; asset quality improves sequentially

(PNB IN, Mkt Cap USD6.8b, CMP INR207, TP INR250, 21% Upside, Buy)

• PNB reported PPoP of INR32.8b (+2%/-1% QoQ/YoY; 10% beat). Lower-than-estimated non-core income was compensated by a 10% beat on operating expenses. Provisions of INR24.4b (in-line) led to PAT of INR5.6b (+63% QoQ on a low base), which beat estimate by 35%.
  
• Slippages moderated to INR34.6b (3.5% annualized), of which 30% is fresh 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 advances (11.4% in 1Q).
  
• Domestic NIM improved 8bp QoQ to 2.64%, with a 4bp decline in cost of funds and a 3bp increase in yield on advances. Loan book grew 3%/4% QoQ/YoY, impacted by muted growth in the corporate segment. Retail loans grew 5%/16% QoQ/YoY, driven by 34% YoY growth in housing loans.
  
• Other highlights: a) CASA deposits grew 19% YoY, driven by 21% YoY growth in SA deposits; average CASA ratio stood at ~44.4% v/s 44% a quarter ago and 42.1% a year ago. b) Fee income growth was strong at 15% YoY, helped by better retail fees. c) CET1 ratio of ~7.67% remains a concern – management is looking to raise capital in FY18.