Q1FY17 mixed bag for PSU Banks; should you buy?

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New Delhi | Updated: August 16, 2016 11:17:16 AM

With the quarterly result of State Bank of India, most public sector banks have now declared their financial results for the quarter ended June 30, 2016.

PSU Bank SBI With the quarterly result of State Bank of India, most public sector banks have now declared their financial results for the quarter ended June 30, 2016. (Reuters)

With the quarterly result of State Bank of India, most public sector banks have now declared their financial results for the quarter ended June 30, 2016. Lender such as State Bank of India (SBI) impressed Dalal Street this time, whereas others like Bank of Baroda disappointed markets on account of sustained pressure on asset quality. The country’s largest lender State Bank of India on Friday reported 31.70 per cent fall in net profit at Rs 2,520.96 crore for the quarter ended June, 30 2016 against net profit of Rs 3,692.43 crore in the corresponding quarter a year ago. Bank of Baroda reported 59.70 per cent year-on-year fall in net profit at Rs 423.62 crore for the quarter under review against Rs 1052.15 crore in the same quarter last year. Overall, banking companies in the Nifty PSU Bank index reported 82.50 per cent year-on-year fall in bottom line figures for the quarter ended June 30, 2016.

Asset quality of banks such as Allahabad Bank, Indian Overseas Bank, Andhra Bank, Punjab National Bank and Union Bank of India deteriorated further. Net non-performing assets (NPA) of Allahabad Bank rose to 8.69 per cent as against 3.67 per cent as on June 30, 2015. Net NPA of Indian Overseas Bank, Andhra Bank, PNB and Union Bank also jumped to 13.97 per cent, 6.21 per cent, 9.16 per cent and 6.16 per cent for the quarter ended June 30, 2016 from 6.31 per cent, 2.99 per cent, 4.05 per cent and 3.08 per cent, respectively, for the quarter ended June 30, 2015. For April-June period, Allahabad Bank and Indian Overseas Bank reported net loss of Rs 564.96 crore and Rs 1450.50 against net profit of Rs 146.86 crore and Rs 14.76 crore in the same period last year.

Read more: SBI shares continue to rise on drop in fresh bad loan, should you buy?

Percentage of net NPAs stood almost stable for Bank of India, Bank of Baroda and Canara Bank of quarter on quarter basis. Pankaj Sharma, Head of equities, Equirus Securities said, “It is a mixed bag of numbers for PSU Banks.”

After the results, brokerage house KR Choksey Shares and Securities is looking bullish on State Bank of India shares with a target price of Rs 302. “The brokerage house said, “We expect healthy 13-14 per cent loan CAGR and 12-13 per cent deposits CAGR which in turn should translate into 12 per cent net interest income CAGR and operating CAGR at similar levels over FY17-18E.”

Despite disappointing number from Bank of Baroda and Bank of India, Sharekhan is bullish on these banks. According to the brokerage house, the management strategy of rebalancing the asset profile will be a key differentiator going forward and a long-term positive. Sharekhan has ‘Buy’ on Bank of India shares with a target price of Rs 180.

For Bank of India Sharekhan said, “The bank has seen improvement in its liability franchisee (CASA up 233 basis points quarter on quarter and 411 basis points year on year), which is a positive sign. BoI currently trades at an attractive valuation of 0.3x PBV FY2018E and we have upgraded our rating to Hold with a revised target price of Rs 130.” Shares of Bank of Baroda and Bank of India were trading at Rs 149.40 and Rs 112.35 in the morning trade.

Edelweiss is positive on Union Bank of India shares with a target price of Rs 136. The brokerage house said, “Union Bank of India Q1FY17 PAT came broadly in line with estimates.” Shares of the bank were trading at Rs 129.15 in the morning trade on Tuesday.

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