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MOSL: PUNJAB NATIONAL BANK (Neutral)-Recoveries & upgrades outlook strong-Slippages trajectory to improve further

Punjab National Bank: Recoveries & upgrades outlook strong; Slippages trajectory to improve further

(PNB IN, Mkt Cap USD4b, CMP INR75, TP INR80, 6% Upside, Neutral)

 

Punjab National Bank’s (PNB) management hosted an analyst meet to discuss the third quarter results performance and the outlook ahead. Key takeaways:

 Domestic loan growth to gain more traction, margins to improve further

• Domestic advances increased 6.7% YoY, as retail loans grew by 15% YoY (+5.6% QoQ), primarily driven by housing loans (+19.4% YoY) and education loans (+9.1% YoY). PNB targets loan growth of double-digit in FY19 and high-double-digit in FY20. Although overseas loans declined in the quarter, PNB will continue growing its overseas business in the UK, Dubai and Hong Kong.
• NII growth picked up to 8% YoY to INR42.9b, which led to an improvement in the margin to 2.64% in Dec’18. The bank also expects an improvement in RoA and NIM as it progresses further.

 Recoveries & upgrades at INR166b in 9MFY19; outlook remains strong

• PNB expects to recover INR60b from the resolution of Bhushan Power and Essar Steel cases. P&L impact from such recoveries is estimated at ~INR18b, of which INR6b will flow in interest income and INR12b will flow under provisions as write-backs.
• It further expects INR40b to be recovered from NCLT account resolutions and some write-backs on this front (carries ~75% PCR toward NCLT accounts).
• Gems & jewellery fraud account: PNB expects INR30b-40b of recoveries from this account (total exposure INR143.6b). Recoveries could increase on further developments.