Higher provisioning hits PNBs profit by 18%

New Delhi, May 28 | Updated: May 29 2007, 05:30am hrs
PNBs fourth quater FY07 profit after tax (PAT) at Rs 240 crore, showed a negative growth of 17.7% Y-o-Y. This was largely on account of a 75% Y-o-Y rise in operating expenses and higher provisions of Rs 612 crore, of which Rs 330 crore was on account of MTM losses.

Net Interest Margins fell 14bps sequentially but rose 7bps over the year (to 4.07%). Cost of deposits rose 13bps sequentially and 21bps on a yearly basis (to 4.53%) vs a rise in yield on advances by 6bps sequentially and 86bps on a yearly basis (to 9.17%).

A 75% growth in operating expenses was largely on account of the base effect caused by the banks decision to re-classify provisions for pension liabilities in the fourth quater FY06. The re-classification had led to a 43% fall in staff costs in fourth quater FY06. Provisions for the quarter were high at Rs 6.1bn, of which Rs 330 crore was on account of the MTM losses on the bond portfolio.

The portfolio continues to look a bit exposed with 62.3% in the HTM category and AFS duration at 3.5 years. Net NPAs have risen from 0.42% in Q3 to 0.76% in the fourth quater.While there has been a slight pressure on incremental NIMs on a sequential basis, the banks ability to keep NIMs above 4% is still commendable. However, we are reducing our price target by 6% to account for the lower than expected earnings in FY07. The stock quotes at 1.5x FY08E BV and 9.2x FY08E earnings.