October 7, 2010

BANKING
COMPANY UPDATE

Institutional Equities Punjab National Bank (Rs1,317)

Out Performer
India Research Target Price: Rs1,562

Stock Data In a recent development, Punjab National Bank (PNB) and other seven banks'
exposure to Zoom developers (a Mumbai based project development company)
Bloomberg Code PNB.IN has come into light. The banks' total exposure to the account is close to Rs26
Market Cap. (Rs bn / US$ bn) 415/8.9
bn (non-fund based exposure), out of this PNB's (the lead banker) exposure is
close to Rs4.5 bn. In accordance with the media reporting, in Q1FY11, the bank
52-week High/Low (Rs) 1,333/790 already recognized Rs3.0 bn as NPAs and made provisions. According to our
Shares Outstanding (mn) 315.3
communication with other banks' managements some of the banks made
provisions in Q4FY10 itself. Around 76% of the banks' exposure is insured with
Avg. daily volume ('000) 422 ECGC (Export Credit Guarantee Corporation).
Avg. daily value (Rs mn) 414 Though, it appears that ECGC may not fulfill the banks' claim for the account,
Promoter holding (%) 57.8 and banks are pushing the matter for corporate debt restructuring (CDR). The
CDR package could provide short term relief to the borrower and to ECGC. The
Free float (%) 42.2 borrower has been aggressively trying to raise short-term funds for fulfilling
FII holding (%) 19.08 liabilities on account of employees' costs and overheads. Given the status of
the borrower, CDR package might not revive the borrower and banks could have
to write off the entire exposure.
Relative Performance Central Bureau of Investigation (CBI) would be investigating the foreign currency
irregularities and the central bank would investigate huge amount of banks'
80
non-fund exposure to single account.
60
40
20
(Rs mn) FY2008 FY2009 FY2010 FY2011E FY2012E
0
Total Net Income 75,317 98,966 119,354 140,686 174,401
(20)
6-Oct-09 6-Apr-10 6-Oct-10 Profit before provisions 40,062 56,904 71,735 84,011 106,219
Sensex PNB NIM (%) 3.2 3.2 3.2 3.3 3.4
Net Profit 20,488 30,909 39,054 44,012 57,024
EPS (Rs) 65 98 124 140 181
EPS Growth (%) 33 51 26 13 30
BSE Sensex 20,543
P/E (x) 20.3 13.4 10.6 9.4 7.3
Price/Book Value (x) 3.9 3.2 2.6 2.1 1.7
Price/Adjusted Book Value (x) 4.0 3.2 2.7 2.3 1.9
Dividend Yield (%) 1.0 1.5 1.7 2.1 2.8
Cost-to-income (%) 46.8 42.5 39.9 40.3 39.1
ROA (%) 1.1 1.4 1.4 1.3 1.4
ROE (%) 19.6 25.8 26.6 24.6 26.2
Tier-1 Capital (%) 8.8 9.0 9.1 8.7 8.4
Source: Company & Karvy Institutional Research
Rakesh Kumar
rakesh.kumar@karvy.com
+91-22-22895028

Karvy Institutional Equities • 2nd Floor, Regent Chambers, Nariman Point - Mumbai 400 021 • +91-22-2289 5000.

For Private Circulation only. For important information about Karvys’ rating system and other disclosures refer to the end of this material.
Karvy Stock Broking Research is also available on: Bloomberg - KRVY <GO>, Thomson Publisher & Reuters.
 October 7, 2010

Institutional Equities Punjab National Bank

In case of PNB, as on end-March' 10, the bank's total gross NPAs was Rs32.1 bn (1.71%
of gross advances) and increased to Rs36.1 bn (1.82% of gross advances). Out of total
exposure, Rs3.0 bn has been recognized as NPAs and provided for in Q1FY11 but extent
of provisioning is unknown. In a worst case scenario, if the bank writes-off entire
exposure in FY11, EPS would decline by close to 6.5% to Rs131 and book value would
drift by close to 1.4% to Rs613. We await complete clarity on the issue to effect the
change in earning estimates and target price. We maintain our earning estimates and
Out Performer rating with a target price of Rs1,562 at 2.2x adjusted book value FY12.

2
 Institutional Equities

Stock Ratings Absolute Returns

Buy : > 25%
Out Performer : 16 - 25%
Market Performer : 0 - 15%
Under Performer : < 0%
Sell : <(25%)

Hemindra Hazari
(Head of Research)
hemindra.hazari@karvy.com

For further enquiries please contact:

research@karvy.com
Tel: +91-22-22895000

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