Investor's Eye: Update - Punjab National Bank, Glenmark Pharmaceuticals, Allahabad Bank

 

Investor's Eye [July 25, 2014]  Sharekhan www.sharekhan.com

Summary of Contents     STOCK UPDATE     Punjab National Bank Recommendation: Buy Price target: Rs1,160 Current market price: Rs923   Higher NII boosts profits   Key points  Punjab National Bank (PNB) reported a net profit of Rs1,405 crore (up 10% YoY) led by an improved growth in the NII (up 12% YoY) and a reversal of investment provisions (Rs381 crore). The operating profit (ex treasury income) grew at a healthy rate of 26.7% YoY. The NIM bounced back on a sequential basis to 3.42% (3.2% in Q4FY2014). Though the reported NPAs increased sequentially, but the stressed asset formation was lower (fresh NPAs of Rs2,958 crore and fresh restructuring of Rs1,452 crore) than the Q4FY2014 levels. According to the management, most of the stressed large accounts are already restructured and the asset quality is expected to stabilise going ahead.  PNB is among the top public sector banks, has a strong liability base and is relatively better capitalised (tier-1 CAR of 8.81%) because of which it will benefit from a revival in the economy. We expect the bank's RoE and RoA to improve to 14% and 0.8% respectively by FY2016. Currently, the stock is trading at 0.8x FY2016 book value. We maintain our Buy rating on the stock with a price target of Rs1,160.     Glenmark Pharmaceuticals Recommendation: Hold Price target: Rs670 Current market price: Rs636   Downgraded to Hold post-result rally   Key points  Glenmark Pharma reported a strong performance for Q1FY2015, as reflected in a 20% Y-o-Y rise in net revenues, a 146-BPS expansion in the OPM and a 46% surge in the adjusted net profit. The growth was mainly driven by the formulation business in Europe (up 34.5%), the RoW (up 21%) and India (up 21%). However, the key upside came from a licencing income of Rs29.9 crore (vs nil such income in Q1FY2014).  The growth in the US market moderated to 9% due to a lack of new product approval during the quarter. However, the growth in the US market is likely to accelerate in H2FY2015 on the back of key product approvals.  Despite a strong Q1, the management has curtailed the revenue growth guidance to 14-15% from 15-16% earlier which hints at a restricted growth going forward (mainly in the US market). We maintain our estimates and price target of Rs670, which includes Rs615 (14x FY2016E EPS) for the base business and Rs55 for the R&D pipeline. However, as the post-result rally leaves a limited upside to the stock price, we downgrade our recommendation on the stock to Hold.     Allahabad Bank Recommendation: Buy Price target: Rs160 Current market price: Rs119   Higher provisions dent earnings, asset quality improves    Key points  Allahabad Bank reported subdued profitability for Q1FY2015 due to a sharp increase in provisions. However, a sequential decline in the reported NPA ratio was a positive point in the results. Recoveries of about Rs96 crore from a couple of accounts boosted the net interest income growth and margins (3.25% in Q1FY2015 vs 2.67% in Q4FY2014). The slippages were at Rs1,242 crore while fresh restructuring was at Rs1,274 crore (lower than in Q4FY2014). The bank utilised treasury gains of Rs153 crore and income from recoveries to provide for a stressed account (in the shipping sector) which raised the provision coverage ratio to 50%. The bulky exposures in the corporate sector had led to asset quality issues; hence, the bank plans to consolidate its corporate exposure and focus on retail and SME sectors for growth. The stock currently trades at 0.5x FY2016E book value which partly factors in the concerns related to the asset quality and lower tier-I CAR. We maintain our Buy rating on the stock with a price target of Rs160. Click here to read report: Investor's Eye         Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards,  The Sharekhan Research Team

 

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