IL&FS - Punjab National Bank

Company background

PNB has a network of 4,525 branches and ranks second in terms of branch network after SBI. The bank has pan-India presence and customer base of more than 18.3mn. PNB has implemented CBS in 2,526 outlets at 668 centers, thereby covering more than 85% of its total business, 80% of its deposits and 90% advances. The bank is inherently strong in the Northern region as compared to other banks.

Expansion in assets with consistently improving RoA

PNB has reported 19% CAGR growth in assets in FY03-06, while its return on assets has gone up from 0.98% in FY03 to 1.14% reported in Q3FY07. This implies that the bank has consistently been able to grow above 18%.

Sustainable net interest margin

PNB reported net interest margin of 4.21% in Q3FY07 as compared to 4% in 3FY06.

This was mainly due to rise in BPLR rate and due to higher CASA share to total deposits. PNB has increased BPLR rate by more than 50bps from 11.75% to 12.25% with effect from February 15, 2007. Yield on advances was 9.11% as on Q3FY07 as compared to 8.38% in Q3FY06.

Valuation

At the CMP of Rs451 the stock trades at 1.56x FY06 adjusted book value of Rs289 and 1.52x FY06 book value of Rs297. We remain positive with the bank’s performance owing to its large network of branches, better net interest margin and adequately derisked investment portfolio.