Company Update

Punjab National Bank

robust growth
Industry Company P/ ABV Market Cap. (Rs) Banking 0.9x FY09E 125bn BSE/ NSE Code 52 Week H/L Face Value (Rs) 532461/ PNB Rs.711/ Rs. 332 10

Rs.396 Buy

Key Highlights Robust PAT: PNB reported robust growth in PAT of 85.8% yoy to Rs10.0bn, maintaining its lead in the banking industry. Other Income grew by 96% y-o-y at Rs.9.4bn and Net Interest income grew at 38% y-o-y at Rs.19.67bn. Improved NIMs: The robust growth in Net Interest Income can be attributed to a healthy growth in advances at 39% yoy to Rs.11416bn. PNB also witnessed expansion in NIMs by ~20bps at 3.85% yoy due to eased CRR as well as SLR requirements, as also enjoying better pricing power and monetary easing in Q3FY09. Healthy Business Growth: Advances improved 39% yoy for PNB and deposits grew at 29% yoy. The Credit Deposit ratio also improved for the bank at 72%, maintaining healthy growth even in the moderate growth circumstances. However, the CASA ratio declined for the bank to ~37% from ~39%, CASA ratio still being in line with the industry. Asset Quality: Gross as well as Net NPA levels for the bank remain at very comfortable levels, inspite of strong growth in the business of the bank. PNB reported Gross NPA at 2.28% and Net NPAs at 0.39% respectively, showing no stress on asset quality. Company Profile Punjab National Bank (PNB) is the second largest state owned bank with a strong presence in cash rich North and Central India. Established in 1894, it has a network of over 4,500 branches. It is one of the most technologically advanced public sector bank with the government owning 57.8% of its equity. PNB aims to expand its base in the entire northern India region for providing banking facilities at the doorsteps of the people. The Bank is aiming at a 100% CBS by March 2009, with its continued focus on financial inclusion as well as rural growth. Outlook Though the robust growth in advances at ~39% in this quarter looks unsustainable, we expect the bank to maintain a CAGR growth in its business of ~20% yoy. NIMs can also take a hit and mellow down to ~3.5% due to high cost deposits forming large part of its total business and low share of CASA deposits; still being one of the healthiest NIMs across public sector banks. PNB can positively surprise due to lower NPA provisions and higher loan book growth with good margin stability. The stock trades at 0.9x FY09E BV currently. Valuations remain very attractive for the investors to have a low risk stable investment bet. We maintain Buy.

5, February 2009

Rachana Kothari rachana_kothari@lkpsec.com

Quarter Ended 31.12.2008 31.12.2007 Interest Earned 52947 36361 Interest/Discount on Advances/Bills 40901 26687 Interest on Investment 11590 9201 Interest on bal with RBI & inter bank funds 346 322 Other Interest 111 151 Other Income 9452 4834 Total Income 62399 41196 Operating Expenses 11066 9165 Payments to / Provisions for employees 7890 6575 Other operating expenses 3176 2590 Interest 33274 22117 Total Expenses 44340 31282 Operating Profit Before Prov & Cont 18059 9914 Provisions & Contingencies 1813 1576 Provision for Taxes 6188 2923 Net Profit 10058 5415 Ratio Analysis EPS (Rs) [Basic & Diluted] Capital Adequacy Ratio %- Basel I Gross Non Performing Assets Net Non Performing Assets (%) Gross Non Performing Assets (%) Net Non Performing Assets Return on Assets (Annualised) % Quarter Ended 31.12.2008 31.12.2007 31.90 17.17 12.49 14.04 32644 42506 5523 13394 2.28 4.11 0.39 1.33 1.74 1.21

Rs Mn.

Nine Months Ended Growth 31.12.2008 31.12.2007 46% 140836 103852 53% 106368 75922 345% 31884 26355 7% 1930 1172 -26% 654 404 96% 20641 14604 51% 161477 118456 21% 30323 26978 20% 21230 19404 23% 9092 7574 50% 89593 63684 119915 90661 82% 41562 27795 15% 7096 5427 112% 12213 7318 86% 22253 15050 Nine Months Ended 31.12.2008 31.12.2007 70.58 47.73 12.49 14.04 32644 42506 5523 13394 2.28 4.11 0.39 1.33 1.37 1.16

Growth 86% -23% -59%

750 650 550 450 350 250 150 Feb-08 Jun-08

PNB

BSE Sensex
FIs, MFs 18%

Others 1%

Public 4%

GOI 59%

Nov-08

May-08

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FIIs 18%