SECURITY ANALYSIS & INVESTMENT MANAGEMENT

FUNDAMENTAL ANALYSIS ON
PUNJAB NATIONAL BANK LIMITED

Submitted to: Submitted by:

Ms. Richa Singal Ashutosh Gupta
Faculty, TIAS MBA 3rd Semester

SESSION: 2009 - 2010

TECNIA INSTITUTE OF ADVANCED STUDIES

(Approved by AICTE, Ministry of HRD, Govt. of India)

Affiliated To Guru Gobind Singh Indraprastha University, Delhi

INSTITUTIONAL AREA, MADHUBAN CHOWK, ROHINI, DELHI- 110085

E-Mail:director@tecniaindia.org, Website: www.tecniaindia.org

Fax No: 27555120, Tel: 27555121-24

 COMPANY PROFILE
Punjab National Bank (BSE: 532461), is a state-owned financial services company located in New
Delhi, India. It was registered on May 19, 1894 under the Indian Companies Act with its office in
Anarkali Bazaar Lahore. Today, the Bank is the second largest government-owned commercial bank
in India with about 5000 branches across 764 cities. It serves over 37 million customers. The bank
has been ranked 248th biggest bank in the world by the Bankers Almanac, London. The bank's total
assets for financial year 2010 were about ` 296,632 crores. PNB has a banking subsidiary in the UK,
as well as branches in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai,
Oslo, and Shanghai.

Punjab National Bank is one of the Big Four Banks of India, along with ICICI Bank, State Bank of
India and Canara Bank.

Services of Punjab National Bank

Punjab National Bank offers financial solutions and services in an array of sectors. All these services
that are offered keep pace with the changing market trends in order to fulfill the needs and
preferences of the customers. Some of the well known sectors on which the main functions of the
bank are based are:

 Personal Banking
 Corporate Banking
 Agriculture finance services
 Industrial finance services
 Trade financial services
 International banking services

PNB also has commercial relationship with more than 200 prestigious international banks across the
globe. It has the provisions of Rupee Drawing Arrangements with around 15 exchange companies in
the UAE and 1 in Singapore.

In case of the personal banking segment, the bank offers customized solutions to take care of almost
all financial needs of the customers. Some of the well known services that are offered in the bank
are:

 Savings Fund Account

 Fixed Deposit scheme
 Current account
 Loan services

Punjab National Bank is also a well known name in housing loan benefits. The bank offers both
short term and long term loans. The rates are also affordable and can be paid within a particular time.
The PNB Housing Finance sanctions around 80% of the cost of the project. However, the maximum
amount is around Rs 50 lakh. The interest of the loan is based on the reducing balance and the
principal amount of the loan is also based on the repaying capability of the borrower.
PUNJAB NATIONAL BANK LIMITED
------------------- in ` Cr. -------------------
BALANCE SHEET
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
CAPITAL AND LIABILITIES:
Total Share Capital 315.30 315.30 315.30 315.30 315.30
Equity Share Capital 315.30 315.30 315.30 315.30 315.30
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 8,758.68 9,826.31 10,467.35 12,824.59 15,915.63
Revaluation Reserves 302.38 293.85 1,535.70 1,513.74 1,491.99
Net Worth 9,376.36 10,435.46 12,318.35 14,653.63 17,722.92
Deposits 119,684.92 139,859.67 166,457.23 209,760.50 249,329.80
Borrowings 6,687.18 1,948.86 5,446.56 4,374.36 19,262.37
Total Debt 126,372.10 141,808.53 171,903.79 214,134.86 268,592.17
Other Liabilities & Provisions 9,518.93 10,178.51 14,798.23 18,130.13 10,317.69
Total Liabilities 145,267.39 162,422.50 199,020.37 246,918.62 296,632.78

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

12 mths 12 mths 12 mths 12 mths 12 mths

ASSETS
Cash & Balances with RBI 23,394.56 12,372.03 15,258.15 17,058.25 18,327.58
Balance with Banks, Money at
1,397.14 3,273.49 3,572.57 4,354.89 5,145.99
Call
Advances 74,627.37 96,596.52 119,501.57 154,702.99 186,601.21
Investments 41,055.31 45,189.84 53,991.71 63,385.18 77,724.47
Gross Block 2,106.92 2,247.74 3,699.64 3,930.36 4,215.21
Accumulated Depreciation 1,076.69 1,237.92 1,384.12 1,533.25 1,701.74
Net Block 1,030.23 1,009.82 2,315.52 2,397.11 2,513.47
Capital Work In Progress 0.00 0.00 0.00 0.00 0.00
Other Assets 3,762.79 3,980.80 4,380.84 5,020.20 6,320.07
Total Assets 145,267.40 162,422.50 199,020.36 246,918.62 296,632.79

Contingent Liabilities 39,860.40 52,884.89 80,606.88 79,270.65 68,124.47

Bills for collection 18,878.91 21,815.59 23,448.99 31,941.43 33,215.78
Book Value (Rs) 287.79 321.65 341.98 416.74 514.77
PUNJAB NATIONAL BANK LIMITED

YEARLY RESULTS -----------------------------In ` Crs--------------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Sales Turnover 9,584.15 11,537.48 14,265.02 19,326.16 21,466.91
Other Income 1,231.16 1,042.30 1,997.56 2,919.69 3,412.49
Total Income 10,815.31 12,579.78 16,262.58 22,245.85 24,879.40
Total Expenses 3,863.09 4,387.74 4,235.81 5,183.63 6,183.42
Operating Profit 5,721.06 7,149.74 10,029.21 14,142.53 15,283.49
Profit On Sale Of Assets -- -- -- -- --
Profit On Sale Of Investments -- -- -- -- --
Gain/Loss On Foreign Exchange -- -- -- -- --
VRS Adjustment -- -- -- -- --
Other Extraordinary
-- -- -- -- --
Income/Expenses
Total Extraordinary
-- -- -- -- 152.82
Income/Expenses
Tax On Extraordinary Items -- -- -- -- --
Net Extra Ordinary
-- -- -- -- --
Income/Expenses
Gross Profit 6,952.22 8,192.04 12,026.77 17,062.22 18,695.98
Interest 4,917.39 6,022.91 8,730.86 12,295.30 12,944.02
PBDT 2,034.83 2,169.13 3,295.91 4,766.92 5,904.78
Depreciation -- -- -- -- --
Depreciation On Revaluation Of
-- -- -- -- --
Assets
PBT 2,034.83 2,169.13 3,295.91 4,766.92 5,904.78
Tax 595.52 629.05 1,247.15 1,676.04 1,999.43
Net Profit 1,439.31 1,540.08 2,048.76 3,090.88 3,905.35
Prior Years Income/Expenses -- -- -- -- --
Depreciation for Previous Years
-- -- -- -- --
Written Back/ Provided
Dividend -- -- -- -- --
Dividend Tax -- -- -- -- --
Dividend (%) -- -- -- -- --
Earnings Per Share 45.65 48.84 64.98 98.03 123.86
Book Value -- -- -- -- --
Equity 315.30 315.30 315.30 315.30 315.30
Reserves 8,758.68 9,826.31 10,467.35 12,824.59 15,915.62
Face Value 10.00 10.00 10.00 10.00 10.00
 GRAPHICAL REPRESENTATION (INCOME STATEMENT)

Operating Results
30,000.00

25,000.00

20,000.00
in ` crores

Total Income
15,000.00 Total expenditure
PBT
10,000.00
PAT

5,000.00

0.00
2006 2007 2008 2009 2010

Balance Sheet
3,50,000.00

3,00,000.00

2,50,000.00
Total Assets
in ` crores

2,00,000.00
Investments

1,50,000.00 Shareholders' Equity

Deposits
1,00,000.00
Borrowings

50,000.00

0.00
2006 2007 2008 2009 2010
 Income Statement
30,000.00

25,000.00

20,000.00
in ` crores

Total Income
15,000.00
Total Expenditure
10,000.00 Net Profit after Tax

5,000.00

0.00
2006 2007 2008 2009 2010

Explanation for Income Statement Line Graph:

1. The total income rose by 130.03% from year 2006 to 2010 and 11.84% from year 2009 to
2010.
2. The total expenditure rose by 60.06% only from year 2006 to 2010 and 19.29% from year
2009 to 2010.
3. The net profit after tax rose by 42.34% from year 2006 to 2010 and 33.02% from year 2009
to 2010.

Explanation for Balance Sheet Line Graph:

1. The total assets rose by 104.20% from year 2006 to 2010 and by 20.133% from 2009 to
2010.
2. The equity was kept same from 2006 to 2010 at the level of ` 315.50 crore.
3. The Deposits rose by 108.32% from 2006 to 2010 and by 18.86% from 2009 to 2010.
4. The investments rose by 89.32% from 2006 to 2010 and by 22.62% from 2009 to 2010.
 Balance Sheet
3,50,000.00

3,00,000.00

2,50,000.00
in ` crores

2,00,000.00 Total Asset

Equity
1,50,000.00
Deposits
1,00,000.00 Investments

50,000.00

0.00
2006 2007 2008 2009 2010

RATIO ANALYSIS OF PUNJAB NATIONAL BANK LIMITED

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Investment Valuation Ratios
Face Value 10.00 10.00 10.00 10.00 10.00
Dividend Per Share 6.00 10.00 10.00 20.00 22.00
Operating Profit Per Share (Rs) 57.00 74.53 109.81 151.48 191.63
Net Operating Profit Per Share
310.53 383.89 505.09 694.81 777.82
(Rs)
Free Reserves Per Share (Rs) 69.61 64.29 63.79 64.04 63.79
Bonus in Equity Capital -- -- -- -- --

Profitability Ratios
Interest Spread 3.94 4.40 4.18 4.18 4.46
Profit before taxes to total income 18.81 17.24 20.27 21.43 23.73
(%)
Profit after tax to total income 13.30 12.24 12.60 13.89 15.69
Return on Net Worth (Equity)(%) 17.01 16.03 19.00 23.52 24.06
Adjusted Return on Net Worth(%) 15.83 15.17 18.99 23.50 24.04

Management Efficiency Ratios

Interest Income / Total Funds 7.23 7.88 8.86 9.89 9.07
Net Interest Income / Total Funds 3.60 3.96 4.00 4.34 4.28
Net Profit / Total Funds 1.06 1.00 1.14 1.40 1.45
Total Income / Capital
7.33 8.00 8.99 10.14 9.24
Employed(%)
Total Assets Turnover Ratios 0.07 0.08 0.09 0.10 0.09
Asset Turnover Ratio 4.75 5.48 4.35 5.64 5.89

Profit And Loss Account Ratios

Interest Expended / Interest Earned 51.31 52.20 61.20 63.62 60.30
Other Income / Total Income 1.33 1.52 1.43 2.46 1.75
Operating Expense / Total Income 31.00 30.36 23.10 21.53 22.19

Balance Sheet Ratios

Capital Adequacy Ratio 11.95 12.29 13.46 14.03 14.16

Debt Coverage Ratios

Cash Deposit Ratio 14.74 13.78 9.02 8.59 7.71
Debt Equity Ratio 13.19 13.79 15.44 15.96 15.36
Interest Coverage Ratio 1.39 1.42 1.42 1.43 1.50
Interest Coverage Ratio Post Tax 1.33 1.29 1.25 1.27 1.32

Leverage Ratios
Current Ratio 0.03 0.03 0.02 0.02 0.02
Quick Ratio 10.69 11.10 9.40 9.75 20.47

Cash Flow Indicator Ratios

Dividend Payout Ratio Net Profit 14.98 30.71 23.40 23.86 20.74
Earning Retention Ratio 84.99 69.28 76.59 76.12 79.25

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Earnings Per Share 45.65 48.84 64.98 98.03 123.86
Book Value 287.79 321.65 341.98 416.74 514.77
Interest Spread:
Net interest spread refers to the difference in borrowing and lending rates of financial institutions
(such as banks) in nominal terms. It is considered analogous to the gross margin of non-financial
companies. Net interest spread is expressed as interest yield on earning assets (any asset, such as a
loan, that generates interest income) minus interest rates paid on borrowed funds.
In simple terms, the net interest spread is like a profit margin. The greater the spread, the more
profitable the financial institution is likely to be; the lower the spread, the less profitable the
institution is likely to be. While the federal funds rate plays a large role in determining the rate at
which an institution lends immediate funds, open market activities ultimately shape the rate spread.
Calculation: A bank takes deposits from customers and pays 1% to those customers. The bank lends its
customers money at 6%. The bank's net interest spread is 5%.

Interest Spread
5

4
percentage

2 Interest Spread

0
2006 2007 2008 2009 2010

Profit before Tax to Total Income:

The ratio is calculated by dividing the Profit before Taxes by the total Income earned. This income
tells us that what percentage of total income is earned as profits before paying taxes.
Due to sharp increase in the Total Income of the Punjab National Bank and gradual increase in the
Total Expenditure, the Profit before Taxes tends to increase at a good pace.
 Profit before taxes to Total Income
25

20
percentage

15
Profit before taxes to Total
10 Income

0
2006 2007 2008 2009 2010

Interest Coverage Ratio:

A ratio used to determine how easily a company can pay interest on outstanding debt. The interest
coverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of one
period by the company's interest expenses of the same period. The lower the ratio, the more the
company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its
ability to meet interest expenses may be questionable. An interest coverage ratio below 1
indicates the company is not generating sufficient revenues to satisfy interest expenses.
ICR = EBIT/ Interest Expense

Interest Coverage Ratio

1.55

1.5

1.45
Times

1.4 Interest Coverage Ratio

1.35

1.3
2006 2007 2008 2009 2010
Profit after tax to Total Income:
This ratio analysis tells profitability of a firm after paying all the taxes to total income. The total
income increased by 130.03% from year 2006 to 2010 whereas the total expenditure rose by 60.06%
only from year 2006 to 2010 and the taxes increased by 235.74% from year 2006 to 2010.
Due to the comparative higher growth in the Income level of the PNB Ltd the PAT to Total Income
ratio keeps on increasing after year 2007.

Profit after Tax to Total Income

20

15
percentage

10 Profit after Tax to Total

Income
5

0
2006 2007 2008 2009 2010

Total Assets Turnover Ratios:

The total asset turnover ratio is measured as, Asset turnover = Net Income/ Total assets
This ratio tells the turnover of the asset to generate income. There has been a continuous growth
since 2006 and had a little decline after 2009.

Total Assets turnover Ratio

0.12
0.1
0.08
0.06
Total Assets turnover Ratio
0.04
0.02
0
2006 2007 2008 2009 2010
Return on Total asset (after Tax):
This ratio gives an idea of returning net profit generated by the bank in comparison with assets.
Return on assets= Profit after tax / Total Assets
The return on total assets have been continuously increasing from the year 2006 till yet.

Return on total Assets (after Tax)

1.4
1.2
1
0.8
0.6 Return on total Assets (after
Tax)
0.4
0.2
0
2006 2007 2008 2009 2010

Earning per Share:

Through this ratio it can be analyzed what percent of 1` share is earned.

Earning per Share

140
120
100
80
60 Earning per Share
40
20
0
2006 2007 2008 2009 2010
Capital Adequacy Ratio:
Capital adequacy ratio informs lending up to a certain ratio of equity. It is a measure of a bank's
capital. It is expressed as a percentage of a bank's risk weighted credit exposures.

It is also known as "Capital to Risk Weighted Assets Ratio (CRAR)."

This ratio is used to protect depositors and promote the stability and efficiency of financial systems
around the world. Two types of capital are measured: tier one capital, which can absorb losses
without a bank being required to cease trading, and tier two capital, which can absorb losses in the
event of a winding-up and so provides a lesser degree of protection to depositors.

Capital Adequacy Ratio

14.5
14
13.5
13
12.5
12 Capital Adequacy Ratio
11.5
11
10.5
2006 2007 2008 2009 2010

Return on Equity (Net worth):

The ROE is useful for comparing the profitability of a company to that of other firms in the same
industry.

There are several variations on the formula that investors may use:
1. Investors wishing to see the return on common equity may modify the formula above by
subtracting preferred dividends from net income and subtracting preferred equity from shareholders'
equity, giving the following: return on common equity (ROCE) = net income - preferred dividends /
common equity.
2. Return on equity may also be calculated by dividing net income by average shareholders' equity.
Average shareholders' equity is calculated by adding the shareholders' equity at the beginning of a
period to the shareholders' equity at period's end and dividing the result by two.
3. Investors may also calculate the change in ROE for a period by first using the shareholders' equity
figure from the beginning of a period as a denominator to determine the beginning ROE. Then, the
end-of-period shareholders' equity can be used as the denominator to determine the ending ROE.
Calculating both beginning and ending ROEs allows an investor to determine the change in
profitability over the period.

Return on Equity (Net worth)

30

25

20

15
Return on Equity (Net worth)
10

0
2006 2007 2008 2009 2010

Debt Equity Ratio:

It is a measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is
using to finance its assets.

Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation.
A high debt/equity ratio generally means that a company has been aggressive in financing its growth
with debt. This can result in volatile earnings as a result of the additional interest expense.

If a lot of debt is used to finance increased operations (high debt to equity), the company could
potentially generate more earnings than it would have without this outside financing. If this were to
increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit
as more earnings are being spread among the same amount of shareholders. However, the cost of this
debt financing may outweigh the return that the company generates on the debt through investment
and business activities and become too much for the company to handle. This can lead to
bankruptcy, which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates. For example,
capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2,
while personal computer companies have a debt/equity of under 0.5.

Debt Equity Ratio

18
16
14
12
10
8 Debt Equity Ratio
6
4
2
0
2006 2007 2008 2009 2010
Stock Performance Chart for two Financial Year 2008-2010

Stock Performance Chart for the Financial Year 2008-09

FINANCIAL YEAR 2008-2009
In the financial year 2008-2009 the Punjab National Bank Ltd. Declared dividend once on 29th May
2008.

(LOSSES)

PNB Ltd touched 52 weeks low on 30th June 2008. It dipped to ` 372.50. The RBI hiked its CRR,
Repo Rate that impacted the market in a big way but the various expert foresee growths in future.

In the same financial year, the PNB Ltd dipped to ` 287. The market crashed on the 5th March 2009
because of heavy selling pressure. The crash effected the ‘A’ Group 42 stocks including PNB Ltd. It
was the lowest closing for the Sensex since Nov 2005. The Nifty closed below 2600. During this
free fall ‘A’ group 42 stocks have touched in their 52-week lows. It includes stocks like Dr Reddys
Labs, HCL Tech, HDFC, HDIL, HUL, ICICI Bank, L&T, PNB, Rel Capital, Reliance Comm,
RNRL and Axis Bank.

All BSE sectoral indices closed in red; BSE bankex, oil & gas, power, FMCG indices were down
between 3-4%. Some selling was also seen in metal, pharma, IT, auto and realty stocks.

Sector-wise Break-up - Stocks that have touched 52-week low

Bank - Allahabad Bank, HDFC Bank, ICICI Bank, IndusInd Bank, IOB, Karnataka Bank, Kotak
Mahindra, PNB, SBI and Axis Bank.

Oil & gas - Aban Offshore and RNRL.

Power - Punj Lloyd and Suzlon Energy.

FMCG - HUL has touched a 52 week low of Rs 216.85 and closed at Rs 230.05, down Rs 10.85, or
4.5%.

(GAINS)

The PNB Ltd. Recorded the highest price on its shares on 16th May 2008. The stock price touched
the level of ` 574.80.
The reasons being PNB has announced its FY08 numbers. The Bank has reported Q4 net profit of Rs
544 crore versus Rs 237.7 crore, a growth of 128.86% and net interest income of Rs 1,517 crore
versus Rs 1,423 crore, up by 6.6%. Q4 other income stood at Rs 537.21 crore. NIM was at 3.66%
and CAR at 12.96%. FY08 net profit went up at Rs 2,048 crore from Rs 1,540 crore.
KC Chakrabarty, CMD of Punjab National Bank said today at a press conference that key business
ratios like return on assets was 1.15% versus last year's 1.03%.
He said the bank's annual net profit was Rs 2,048 crore, which he said, was the highest amongst all
nationalised banks.
 Stock Performance Chart for the Financial Year 2009-10

In the financial year 2009-10 the PNB Ltd declared dividend twice as on 3rd June 2009 and 4th Feb
2010.

This financial year the PNB Ltd stocks have performed very well. There have been no looking back
after the fall of 2008 stock price. The stock prices grew on a continuous rate.
 References

1. http://www.google.co.in
2. http://www.wikipedia.com
3. http://www.moneycontrol.com
4. http://www.business-standard.com
5. http://www.economictimes.com
6. http://www.pnbindia.com
7. http://www.investopedia.com
8. http://www.bseindia.org