Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.   

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

  • On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.
  • Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
  • As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
  • The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
  • During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
  • PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
  • PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

  • With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E. 

Consensus Estimate: (Source: market screener and investing.com websites)

  • The closing price of PNB was ₹ 42/- as of 8-June-2021.  It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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