PNB’s Q1FY15 PAT of Rs14.1 bn was better than consensus expectations on betterNII performance and lower provisions. Asset quality was stable with no large slippages. Opex growth remained under control.

1.
Punjab National Bank
July 28, 2014
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Q1FY15 Result Update
Some performance sanity in the quarter
Pritesh Bumb
priteshbumb@plindia.com
+91‐22‐66322232
Rating Accumulate
Price Rs924
Target Price Rs1,025
Implied Upside 10.9%
Sensex 26,127
Nifty 7,790
(Prices as on July 25, 2014)
Trading data
Market Cap. (Rs bn) 334.4
Shares o/s (m) 362.1
3M Avg. Daily value (Rs m) 2703.6
Major shareholders
Promoters 58.87%
Foreign 17.37%
Domestic Inst. 19.43%
Public & Other 4.30%
Stock Performance
(%) 1M 6M 12M
Absolute (4.3) 58.8 47.6
Relative (7.6) 35.1 15.7
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 112.5 127.7 ‐11.9
2016 154.8 159.2 ‐2.8
Price Performance (RIC: PNBK.BO, BB: PNB IN)
Source: Bloomberg
0
200
400
600
800
1,000
1,200
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
(Rs)
PNB’s Q1FY15 PAT of Rs14.1 bn was better than consensus expectations on better
NII performance and lower provisions. Asset quality was stable with no large
slippages. Opex growth remained under control. Though, risk of fall outs from
restructuring to NPAs remain high, Q1FY15 asset quality performance indicates
that worst seem to be over. We retain our PT at Rs1,025 but upgrade our rating to
‘ACCUMULATE’ however closely monitor stressed assets situation as underwriting
remains weakest among peers.
 Stable PPOP performance: PNB’s core PPOP at Rs29.8bn was in‐line with
expectations on better NII performance and as opex remained under control. (1)
Margins improved 22bps QoQ as yields reverted back on lower interest reversals
in this quarter and better loan growth (2) Core fees growth for PNB was flattish
on lower FX related fees but asset linked fees grew faster on better loan growth
in the quarter. (3) Opex growth remains moderated at 9.5% YoY – PNB has been
conservatively providing for pensions in last 2‐3 years and is also adequately
provided on wage revisions which indicates lower opex spikes going ahead.
 Asset quality stable performance; B/s growth mirrors industry: Net stressed
asset creation was at ~5% much lower than 8% seen in Q4FY14. Some large 7
accounts of Rs1bn+ ticket size did slip into NPAs along with some smaller
accounts, but management indicated of downwards trajectory in slippages run‐
rate going ahead. Loan growth mirrored industry growth, came largely from
SME, Agri and Retail segment. Corporate loan book remains in consolidation
mode but management indicated that loan proposals have improved which can
help achieve growth for PNB of 14‐15% in FY15.
 Large restructuring book still has high risk of fallout: PNB’s restructured book is
~10% of loans from which risk of fallout to NPAs is high as underwriting has
been weak but improvement in asset quality this quarter with improved margins
and under control opex drives our rating change one notch up to Accumulate,
however we very closely watch stressed assets situation and further rating
action will be influences on the same.
Key financials ( Y/e March) 2013 2014 2015E 2016E
Net interest income (Rs m) 148,565 161,460 172,196 200,240
Growth (%) 10.8 8.7 6.6 16.3
Operating profit (Rs m) 109,074 113,845 118,775 139,996
PAT (Rs m) 47,477 33,426 40,723 56,044
EPS (Rs) 134.3 92.3 112.5 154.8
Growth (%) (6.7) (31.3) 21.8 37.6
Net DPS (Rs) 27.0 10.0 12.2 16.8
Profitability & Valuation 2013 2014 2015E 2016E
NIM (%) 3.18 3.15 2.90 2.91
RoAE (%) 16.5 10.2 11.2 13.8
RoAA (%) 1.02 0.65 0.69 0.81
P / BV (x) 1.0 1.0 0.9 0.8
P / ABV (x) 1.2 1.1 1.0 0.9
PE (x) 6.9 10.0 8.2 6.0
Net dividend yield (%) 2.9 1.1 1.3 1.8
Source: Company Data; PL Research

2.
July 28, 2014 2
Punjab National Bank
Exhibit 1: Q1FY15 – Better core performance; asset quality stable
1Q13 4Q14 1Q15 YoY QoQ
Interest Income 104,045 111,013 115,887 11.4% 4.4%
Interest Expense 64,970 70,995 72,090 11.0% 1.5%
Net Interest Income 39,075 40,018 43,797 12.1% 9.4%
Other Income 13,421 13,969 12,364 ‐7.9% ‐11.5%
Operating Expenses 22,758 22,253 24,908 9.5% 11.9%
Pre Provisioning Profits 29,738 31,734 31,253 5.1% ‐1.5%
Provisions 10,665 21,387 9,276 ‐13.0% ‐56.6%
Pre Tax Profits 19,073 10,347 21,977 15.2% 112.4%
Tax 6,320 2,284 7,926 25.4% 247.0%
Net Profit 12,753 8,064 14,051 10.2% 74.3%
Ratios
NII/GII 37.6% 36.0% 37.8% 0.2% 1.7%
Cost Income Ratio 43.4% 41.2% 44.4% 1.0% 3.1%
Prov/PPOP 35.9% 67.4% 29.7% ‐6.2% ‐37.7%
NIM 3.52% 3.20% 3.42% ‐0.1% 0.22%
Effective tax rate 33.1% 22.1% 36.1% 2.9% 14.0%
Balance Sheet
Loans 3,050,656 3,492,691 3,474,853 13.9% ‐0.5%
Deposits 3,968,281 4,513,968 4,449,201 12.1% ‐1.4%
Credit‐Deposit Ratio 76.9% 77.4% 78.1% 1.2% 0.7%
Low cost mix 37.8% 38.3% 36.8% ‐1.0% ‐1.5%
Asset Quality:
Gross NPL's 150,906 188,801 196,028 29.9% 3.8%
Net NPL's 90,600 99,170 104,636 15.5% 5.5%
Gross NPL Ratio 4.95% 5.25% 5.48% 0.5% 0.2%
Net NPL ratio 2.97% 2.85% 3.02% 0.1% 0.2%
Coverage Ratio 40.0% 47.5% 46.6% 6.7% ‐0.9%
LLP/Average Loans 1.25% 2.53% 1.43% 0.2% ‐1.1%
Restructured book (Std) 319,120 355,070 340,120 6.6% ‐4.2%
Non‐interest income
Core fees 9,110 8,500 9,250 1.5% 8.8%
Cap Gains 2,840 1,890 1,490 ‐47.5% ‐21.2%
Recoveries + Others 1,470 3,570 1,630 10.9% ‐54.3%
Expenses
Staff expenses 16,159 14,778 17,674 9.4% 19.6%
Other Opex 6,598 7,475 7,235 9.6% ‐3.2%
Source: Company Data, PL Research
NII growth of 12% YoY (9% QoQ) was on
improved NIM performance as yields
reverted back on lower slippages
Core fee income growth was at 1.5% YoY
on lower FX fees, while
exchanges/commission fees growth was
11% YoY
Opex growth has been single digits in
Q1FY15 – Management explained wage
revision has been adequately provided for
than required
NIMs improved by 22bps QoQ largely on
reversion in yields as slippages were not
large as seen in last quarter. Cost of funds
remained stable in Q1FY15.
B/s growth more or less has mirrored
industry growth – Management is hopeful
of growing loan growth by 14‐15%.
In Q4FY14 asset quality had slipped on very
high slippages. In Q1FY15 slippages were
largely lower (Rs29bn v/s 108 bn) largely
relieving some pressure from asset quality.
Restructured additions were also lower at
Rs14.5 bn v/s run rate of Rs25bn‐32bn seen
in last four quarters

3.
July 28, 2014 3
Punjab National Bank
Exhibit 2: Loan growth driven by Agri, SME & Retail
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Loans YoY %
Source: Company Data, PL Research
Exhibit 3: Core fees growth down on lower Fx fees v/s Q1FY14
‐20.0%
‐10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Core Fee YoY %
Source: Company Data, PL Research
Exhibit 4: CASA mix remained stable in the quarter
33.0%
34.0%
35.0%
36.0%
37.0%
38.0%
39.0%
40.0%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Source: Company Data, PL Research
Exhibit 5: NIMs revert back on better yields
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
NIM
Source: Company Data, PL Research
Exhibit 6: Delinquencies come‐off sequentially; slightly high write‐offs
PNB 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Opening 139,978 134,658 150,906 165,256 165,956 188,916
Addition 29,570 35,940 30,500 15,050 36,950 28,580
Cash Recovery 15,910 8,030 10,640 7,200 13,100 7,490
Up‐gradation 18,720 3,670 4,780 3,310 990 2,640
Write off 260 7,990 730 3,840 14,090 12,210
Closing 134,658 150,908 165,256 165,956 188,816 196,056
Annualized Slippages % 3.9% 4.7% 3.9% 1.9% 4.4% 3.4%
Reductions (ex write offs %) 4.6% 1.5% 2.0% 1.3% 1.6% 3.4%
Net Slippages (%) ‐0.7% 3.2% 1.9% 0.6% 2.8% 2.6%
Restructuring Addition 64,440 27,720 27,690 21,500 32,860 14,520
% of loans 8.35% 3.63% 3.53% 2.64% 3.76% 1.67%
Source: Company Data, PL Research
Asset quality was stable as slippages were
under control after large increase in
Q4FY14. Management indicated on fresh
slippages rate would be trending on
downwards trajectory

4.
July 28, 2014 4
Punjab National Bank
Exhibit 7: Credit cost inch dip on lower slippages
‐0.25%
0.25%
0.75%
1.25%
1.75%
2.25%
2.75%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
LLP/Average Loans
Source: Company Data, PL Research
Exhibit 8: Asset quality pain has still not waded off despite low
slippages
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
Gross NPL Ratio Net NPL ratio
Source: Company Data, PL Research
Exhibit 9: ROEs back to 16%; sustainability is questionable
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
Net Interest Income/Assets 3.19% 3.26% 3.29% 3.32% 2.99% 3.19%
Fees/Assets 0.76% 0.88% 0.69% 0.72% 0.90% 0.79%
Investment profits/Assets 0.23% 0.24% 0.04% 0.02% 0.14% 0.11%
Net revenues/Assets 4.18% 4.37% 4.03% 4.06% 4.03% 4.09%
Operating Expense/Assets ‐1.77% ‐1.90% ‐1.95% ‐1.93% ‐1.66% ‐1.82%
Provisions/Assets ‐1.25% ‐0.89% ‐1.56% ‐1.25% ‐1.60% ‐0.68%
Taxes/Assets ‐0.21% ‐0.53% ‐0.11% ‐0.28% ‐0.17% ‐0.58%
Total Costs/Assets ‐3.22% ‐3.31% ‐3.62% ‐3.47% ‐3.43% ‐3.07%
ROA 0.95% 1.06% 0.41% 0.59% 0.60% 1.02%
Equity/Assets 6.5% 6.65% 6.69% 6.55% 6.35% 6.41%
ROE 14.7% 16.1% 6.19% 9.08% 9.47% 15.99%
Source: Company Data, PL Research
Exhibit 10: ROEs to inch up – Large hope built in
2009 2010 2011 2012 2013 2014 2015E 2016E
Net Interest Income/Assets 3.26% 3.23% 3.61% 3.30% 3.26% 3.22% 3.09% 3.05%
Fees/Assets 1.04% 1.05% 1.01% 0.95% 0.82% 0.80% 0.79% 0.78%
Investment profits/Assets 0.31% 0.31% 0.09% 0.09% 0.11% 0.11% 0.09% 0.06%
Net revenues/Assets 4.61% 4.58% 4.71% 4.34% 4.19% 4.13% 3.97% 3.89%
Operating Expense/Assets ‐1.95% ‐1.81% ‐1.94% ‐1.72% ‐1.79% ‐1.86% ‐1.83% ‐1.76%
Provisions/Assets ‐0.45% ‐0.54% ‐0.76% ‐0.88% ‐0.96% ‐1.33% ‐1.06% ‐0.90%
Taxes/Assets ‐0.78% ‐0.76% ‐0.65% ‐0.53% ‐0.39% ‐0.27% ‐0.31% ‐0.35%
Total Costs/Assets ‐3.18% ‐3.10% ‐3.36% ‐3.14% ‐3.14% ‐3.46% ‐3.20% ‐3.02%
ROA 1.43% 1.48% 1.35% 1.20% 1.04% 0.67% 0.76% 0.87%
Equity/Assets 5.54% 5.57% 5.54% 5.71% 6.32% 6.55% 6.29% 6.12%
ROE 25.8% 26.6% 24.4% 21.1% 16.5% 10.2% 12.1% 14.2%
Source: Company Data, PL Research

5.
July 28, 2014 5
Punjab National Bank
Exhibit 11: March 15 PT at Rs1025 per share
Risk free rate 8.0%
Equity Risk Premium 6.0%
Beta 1.50
Cost of Equity 17.0%
Terminal growth 5.0%
Normalised ROEs 13.0%
Stage 2 growth 13.0%
Mar‐15 PT 1025
Implied Mar‐16 P/B 0.96
Implied Mar‐16P/E 6.62
Source: Company Data, PL Research

6.
July 28, 2014 6
Punjab National Bank
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Int. Earned from Adv. 318,545 323,931 372,775 424,634
Int. Earned from Invt. 95,300 102,658 121,503 144,353
Others 5,088 5,643 6,772 8,126
Total Interest Income 418,933 432,233 501,050 577,114
Interest expense 270,368 270,773 328,854 376,874
NII 148,565 161,460 172,196 200,240
Growth (%) 10.8 8.7 6.6 16.3
Treasury Income 4,892 5,540 5,000 4,000
NTNII 37,267 40,227 45,630 51,818
Non Interest Income 42,159 45,767 50,630 55,818
Total Income 461,093 478,000 551,680 632,932
Growth (%) 13.5 3.7 15.4 14.7
Operating Expense 81,651 93,382 104,052 116,062
Operating Profit 109,074 113,845 118,775 139,996
Growth (%) 2.8 4.4 4.3 17.9
NPA Provisions 42,106 58,911 61,429 59,733
Investment Provisions 1,036 7,828 — —
Total Provisions 43,856 66,939 61,629 59,933
PBT 65,218 46,905 57,145 80,063
Tax Provisions 17,741 13,479 16,422 24,019
Effective Tax Rate (%) 27.2 28.7 28.7 30.0
PAT 47,477 33,426 40,723 56,044
Growth (%) (2.8) (29.6) 21.8 37.6
Balance Sheet (Rs m)
Y/e March 2013 2014 2015E 2016E
Par Value 10 10 10 11
No. of equity shares 353 362 362 329
Equity 3,535 3,621 3,621 3,621
Networth 312,481 344,871 380,434 429,375
Adj. Networth 240,116 245,701 262,748 303,988
Deposits 3,915,601 4,513,967 5,281,335 6,126,531
Growth (%) 3.2 15.3 17.0 16.0
Low Cost deposits 1,533,443 1,728,721 2,011,036 2,338,997
% of total deposits 39.2 38.3 38.1 38.2
Total Liabilities 4,774,482 5,490,117 6,367,841 7,397,088
Net Advances 3,087,252 3,492,691 4,016,595 4,699,416
Growth (%) 5.1 13.1 15.0 17.0
Investments 1,298,962 1,437,855 1,794,029 2,054,354
Total Assets 4,774,482 5,490,117 6,367,841 7,397,088
Source: Company Data, PL Research.
Quarterly Financials (Rs m)
Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15
Interest Income 107,335 109,839 111,013 115,887
Interest Expense 67,180 67,628 70,995 72,090
Net Interest Income 40,155 42,211 40,018 43,797
Non Interest Income 8,993 9,384 13,969 12,364
CEB 6,220 6,680 7,360 8,280
Treasury 530 240 1,890 1,490
Net Total Income 49,149 51,596 53,987 56,161
Operating Expenses 23,800 24,572 22,253 24,908
Employee Expenses 16,587 17,580 14,778 17,674
Other Expenses 7,213 6,991 7,475 7,235
Operating Profit 25,348 27,024 31,734 31,253
Core Operating Profit 24,818 26,784 29,844 29,763
Provisions 18,987 15,900 21,387 9,276
Loan loss provisions — — — —
Investment Depreciation — — — —
Profit before tax 6,361 11,123 10,347 21,977
Tax 1,306 3,569 2,284 7,926
PAT before EO 5,055 7,554 8,064 14,051
Extraordinary item — — — —
PAT 5,055 7,554 8,064 14,051
Key Ratios
Y/e March 2013 2014 2015E 2016E
CMP (Rs) 924 924 924 924
Equity Shrs. Os. (m) 353 362 362 329
Market Cap (Rs m) 326,503 334,444 334,444 304,040
M/Cap to AUM (%) 6.8 6.1 5.3 4.1
EPS (Rs) 134.3 92.3 112.5 154.8
Book Value (Rs) 884 952 1,051 1,186
Adj. BV (75%) (Rs) 795 838 924 1,069
P/E (x) 6.9 10.0 8.2 6.0
P/BV (x) 1.0 1.0 0.9 0.8
P/ABV (x) 1.2 1.1 1.0 0.9
DPS (Rs) 27.0 10.0 12.2 16.8
Dividend Yield (%) 2.9 1.1 1.3 1.8
Profitability (%)
Y/e March 2013 2014 2015E 2016E
NIM 3.2 3.1 2.9 2.9
RoAA 1.0 0.7 0.7 0.8
RoAE 16.5 10.2 11.2 13.8
Efficiency
Y/e March 2013 2014 2015E 2016E
Cost‐Income Ratio (%) 42.8 45.1 46.7 45.3
C‐D Ratio (%) 78.8 77.4 76.1 76.7
Business per Emp. (Rs m) 107 115 124 135
Profit per Emp. (Rs lacs) 7.3 4.8 5.4 7.0
Business per Branch (Rs m) 1,179 1,260 1,367 1,488
Profit per Branch (Rs m) 8 5 6 8
Asset Quality
Y/e March 2013 2014 2015E 2016E
Gross NPAs (Rs m) 134,658 188,801 235,371 272,579
Net NPAs (Rs m) 72,365 99,170 117,685 125,386
Gr. NPAs to Gross Adv. (%) 4.4 5.4 5.9 5.8
Net NPAs to Net Adv. (%) 2.3 2.8 2.9 2.7
NPA Coverage (%) 46.3 47.5 50.0 54.0
Source: Company Data, PL Research.

7.
July 28, 2014 7
Punjab National Bank
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
29.6%
50.9%
19.4%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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