April 7, 2011

Public Sector Bank “PANCH”

Public Sector Bank ‐ PANCH …!!!
!!!

Businesss momentum

Public Sector Bank (PSBs) have garnered a significant share of attention of the India centric investor through the 
last decade. While the leader (read SBI) has hogged the limelight  all this while, there exists a sound story in the 
next tier of the banking space... This piece is an attempt to weave a fabric that runs common through these banks 
in terms of their evolution, preparedness, and relative attractiveness to play the next leg of the banking 
opportunity in India.
Darpin Shah Mangesh Kulkarni Shivraj Gupta
darpin.shah@almondz.com mangesh.kulkarni@almondz.com shivraj.gupta@almondz.com
Tel:+91 22 67526643 Tel:+91 22 67526642 Tel:+91 22 6752654 1
 Public Sector Banks “PANCH” ‐ Investment rationale

Strong Earnings growth:

growth We
W expectt the
th banks
b k to
t continue
ti t reportt healthier
to h lthi core earnings
i off Avg
A
24.2% CAGR FY10‐13E, despite factoring lower NIMs (drop of 15 to 30bps), driven by continued
momentum in the business. Net earnings are also expected to boost (growth of 20% CAGR) on back of
lower asset quality issues ‐ lower credit losses and comparatively lower Opex.

Asset Quality stable: Asset quality has deteriorated over the past couple of years with higher slippages
in the normal course of business and also in the restructured assets. We believe, slippages (both in
normal course and restructured assets) have peaked out and thus these PSB to report stable asset
quality. Thus, we believe, the credit cost to decline on an overall basis.

Return Ratios: The PSB’s are expected to report better return ratios vs. its average return ratios over the
period of FY05‐10, even after factoring the recent capital infusion. PNB & CAN Bank are expected to
report higher RoAE of ~ 25% and 24% FY13E respectively, while BoI and UBI are expected to report ~ 20%
RoAE FY13E.

Capital infusion: GoI has infused capital in various banks to increase its holding to ~58% and also
increase the Tier I above 8%. The capital infusion comes as an big anchor for PSB’s to support the credit
growth and also to adhere to BASEL III norms (going forward). Further, the infusion for some of the banks
comes at a premium compared to the then prevailing market prices.
prices
Outside trigger: The various Banking and Finance reforms ‐ Banking bill (Voting rights) and Insurance Bill
(Increase FDI to 49%) would acts an additional catalyst for the further re‐rating of the Indian banks.
Preferred Bets: The continued business momentum is expected
p to drive banks core earnings,
g , despite
p
lower NIMs. Further, lower credit cost with controlled opex is expected to drive banks’ net earnings and
return ratios. Canara Bank and Union Bank remain our Top Picks in the large PSB basket.
DARK HORSE – Bank of India
Source: Almondz, Company 2
 PSB PANCH – Financials 

Bank CMP MCAP Reco. NII Change (%) NIM (%) EPS (Rs) P/ BV (x) P/ ABV (x) RoAE (%) RoAA (%)
(Rs) (Rs bn) FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E
BoB 959 377 Out‐performer 38 18 3.0 2.9 100 119 2.0 1.6 2.0 1.7 24.0 22.1 1.3 1.2
BoI 484 265 Buyy 32 22 2.6 2.6 50 62 1.7 1.4 1.8 1.5 19.1 19.5 0.9 0.9
Can Bk 638 283 Buy 42 16 3.0 2.9 89 98 1.6 1.4 1.9 1.6 26.6 23.4 1.4 1.2
PNB 1197 379 Accumulate 41 15 4.0 3.8 138 164 1.9 1.6 2.1 1.8 26.4 25.5 1.3 1.3
UBI 347 182 Buy 46 18 3.1 3.0 40 49 1.6 1.4 1.8 1.6 20.7 21.0 1.0 1.0

Price Movement: RoAE / PABV
450 Bank Nifty BoB BoI Canara PNB UBI
2.1

P//ABV (x)
400
350
300
1.8 PNB
250 RoANW (%) BoB
200
18 20 22 24 26
150 BoI
UBI 15
1.5
Can Bk
100
50
O ct‐0 7

O ct‐0 8

O ct‐0 9

O ct‐1 0
A p r‐0 7

A p r‐0 8

A p r‐0 9

A p r‐1 0

A p r‐1 1
Ja n‐0 7

Ju l‐0 7

Ja n‐0 8

Ju l‐0 8

Ja n‐0 9

Ju l‐0 9

Ja n‐1 0

Ju l‐1 0

Ja n‐1 1

1.2

Source: Almondz, Company 3
 Peer Comparison…

Core Earning growth (%)

Core Earning growth (%)…  Net Interest Margin (%) PNB leads
Net Interest Margin (%)…PNB leads
BoB BoI
50.0 BoB BoI Canara Bk PNB UBI 4.25 Canara B k P NB
UB I
40.0
3.75
30.0
3.25
20.0
10.0 2.75
0.0
2.25
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E
‐10.0
10.0

FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E
‐20.0

C‐D ratio (%)…  CASA ratio (%)… PNB leads

80.0 BoB BoI Canara Bk PNB UBI 50.0 BoB BoI Canara  Bk PNB UBI
75.0
45.0
70.0
65.0 40.0
60.00
60 35 0
35.0
55.0
30.0
50.0
45.0 25.0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E
F Y04

F Y05

F Y06

F Y07

F Y08

F Y09

F Y10

FYY11E

FYY12E

FYY13E

Source: Almondz, Company 4
 Peer Comparison…

Operating Profit growth (%)

Operating Profit growth (%)… PAT growth (%) BoI highest CAGR FY10‐13E
PAT growth (%)… BoI highest CAGR‐ FY10 13E
60 BoB BoI Canara Bk PNB UBI BoB BoI Canara Bk PNB UBI
100
40

20 50

0
0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FFY11E

FFY12E

FFY13E

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY 11E

FY 12E

FY 13E
‐20

‐40 ‐50

RoAE (%)…  RoAA (%)… 

30.0 BoB BoI Canara Bk PNB UBI 1.6 BoB BoI Canara Bk PNB UBI
1.4
25.0
1.2
20.0 1.0
15 0
15.0 00.88
0.6
10.0
0.4
5.0 0.2
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E

F Y04

F Y05

F Y06

F Y07

F Y08

F Y09

F Y10

FYY11E

FYY12E

FYY13E
Source: Almondz, Company 5
 Peer Comparison…

PAT / Branch (Rs mn) BoB and Can Bank highest…

PAT / Branch (Rs mn) – BoB and Can Bank highest PAT / Employee (Rs mn) BoB leads
PAT / Employee (Rs mn)… BoB leads

16.0 BoB BoI Canara Bk PNB UBI 1.4 BoB BoI Canara Bk PNB UBI
14.0 1.2
12.0
1.0
10 0
10.0
0.8
8.0
6.0 0.6
4.0 0.4
2.0 0.2
0.0 0.0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
Business / Branch (Rs mn) BoB & Can Bank at par Business per Employee (Rs mn)…BoB best

2300 BoB BoI Canara Bk PNB UBI BoB BoI Ca nara  Bk PNB UBI
165
145
1800 125
105
1300
85
65
800
45
300 25
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E

Source: Almondz, Company 6
 Peer Comparison…

GNPA (%)
GNPA (%)… NNPA (%)
NNPA (%)…

12.0 BoB BoI Canara  Bk PNB UBI 5.0 BoB BoI Canara Bk PNB UBI
10.0 4.0
8.0 30
3.0
6.0
2.0
4.0
1.0
2.0
0.0 0.0

FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY11EE

FY12EE

FY13EE
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
Restructured Assets…BoB superior Slippages in restructured assets… Can Bank lowest
160.0 Res t a s s ets  (Rs  bn) % of Loa n book 7.0 25.0 Sl ippa ges  (Rs  bn) Sl i ppa ges  (% RHS) 23.0
6.5
140.0 6.0
120.0 5.4 20.0 18.9
5.0 18.0
100.0 4.6 3.9 14.3
4.0 15.0
80.0 13.0
2.9 3.0
60 0
60.0 10 0
10.0 9.3
40.0 2.0 8.7 8.0
1.0 5.0 7.5
20.0
‐ ‐ ‐ 3.0
Ca n Ba nk  BoB BoI  PNB  UBI
Ca n Ba nk  BoB BoI  PNB  UBI

Source: Almondz, Company 7
 Bank of Baroda “Saaru che (Its good)”…!!!
Business momentum to continue: BoB’s business
b siness has Stock Data
grown at 27.7% CAGR over FY05‐10, with loan book growth of Market Cap (Rs. bn) 377
CAGR 32.6% and deposits CAGR of 24.7% (CASA CAGR of
20%). Going forward we expect the bank to continue to
Market Cap (USD bn) 8.6
deliver higher‐than‐industry loan growth of 22.4% over FY10‐ Shares Outstanding (mn) 393
13E . Free Float (%) 42%
3M avg. daily vol. (mn) 0.81
Core Earnings : The bank’s core earnings grew 15.8% during
FY05‐10 with avg. NIM of 3%. Going forward, we expect core
Shareholding Pattern (%)
earnings to grew at 23.8% CAGR after factoring in 18bps Promoters 58.0%
decline in NIMs to 2.82%. Net Earnings would rise at 21% Institutions 31.6%
CARG despite increase in Opex of 13.4% and in provisions of Public & Others 10.4%
23.7% . Stock Performances
Best Asset Quality: Despite the strong asset growth, BoB (%) return 1m 3m 6m 12m
has maintained its superior asset quality. As on Dec’10, Absolute 8.5 14.1 3.8 42.1
Bank’s GNPA and NNPA stood at Rs 27.7bn (1.32%) and Rs Relative 2.5 17.0 8.3 32.8
7.4bn (0.36%) respectively. Restructured assets ‐ Rs 60bn Stock Information
(2.9% of advances) is lowest compared to its peers, with 52 Wk H / L 1050/ 616
slippages of mere 0.8%
0 8% of loan book.
book BOB IN
Bloomberg Code
Higher Return Ratios: BoB has significantly improved its RoE Reuters Code BOB.BO
from 17.3% (FY05) to 24% (FY11E) and is expected to stabilize CMP 959
at ~22% (after factoring the recent capital infusion of Rs Target (1‐yr) 1113
32 8bn)
32.8bn). Upside 16.1%
View and Valuations: At CMP, the stock trades at Recommendation Out‐performer
1.7xFY12E ABV. We rate “Outperformer” on the stock.
Source: Almondz, Company 8
 Bank of Baroda

Loan Book
Loan Book…  Deposit
Deposit… 
3300 Loa n Book Rs  bn Growth % 50 4500 Depos its  Rs  bn Growth % 40
3000 4000 35
2700 40
3500 30
2400
2100 30 3000 25
1800 2500 20
1500 20 2000 15
1200
1500 10
900 10
600 1000 5
300 0 500 0
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY004

FY005

FY006

FY007

FY008

FY009

FY110
FY111E

FY122E

FY133E

FY111E

FY122E

FY133E
Core Earning…  NIM movement vis‐à‐vis CD ratio…

135 Core Earning (NII) Rs bn Growth % 50 80 C‐D Ratio NIM % (RHS) 3.6

115 75 3.4
40
70 3.2
95 65
30 3.0
75 60
20 2.8
55 55
50 2.6
35 10
45 2.4
15 0 40 2.2
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY04

FY05

FY06

FY07

FY08

FY09

FY10
FY11E

FY12E

FY13E

FY11E

FY12E

FY13E
Source: Almondz, Company 9
 Bank of Baroda

Spreads
Spreads…  Non interest income Analysis
Non interest income Analysis…
Yield on funds % No n Interest Inco me Rs bn
10.0 Cost of funds % 3.5 70.0
9.0 Spread %(RHS) No n Interest Inco me as % o f To tal 60.0
Inco me
3.0 Treasury Inco me as % o f No n Interest 50.0
8.0
32 35 40.0
7.0 2.5 28 30 27
21 30.0
6.0 17
2.0 13 11 12 20.0
5.0 10.0
4.0 1.5 0.0
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10
11E

12E

13E

FY111E

FY112E

FY113E
FY1

FY1

FY1
Operational Efficiency…  Operating Income…
Opex Rs bn
65.0 CI Ratio
2.5 100.0 Including treasury Rs bn
Opex/ A vg asset (RHS)
55.0 80.0 Exluding treas ury Rs bn
2.0
45.0
60.0
35.0 1.5
40.0
25.0
1.0
15.0 20.0

5.0 0.5 0.0

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY04

FY05

FY06

FY07

FY08

FY09

FY10
FY11E

FY12E

FY13E

FY11E

FY12E

FY13E
Source: Almondz, Company 10
 Bank of Baroda

Over head Efficiency

Over‐head Efficiency…  Credit Cost
Credit Cost…
1.0 2.7 Credit cos t
0.9
0.8
0.7
0.6
1.0 0.6 0.5 0.5
0.5 0.3 0.4 0.4 0.4
0.2
0.4
0.3
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY11E

FY12E

FY13E
Net Profit…  Asset Quality…
60 Net Profit Rs bn Growth % 12.0% GNPA % NNPA %
65
50 50 10.0%
40 35 8.0%
30 20 6.0%
5
20 4.0%
‐10
10 ‐25 2.0%
0 ‐40 0.0%
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
Source: Almondz, Company 11
 Bank of Baroda

Return Ratios
Return Ratios… Core Return Ratio…
Return Ratio
30.0 21.0 Core RoAE Core RoAA
27.0 1.3
18.0 1.2
24.0 1.1
15.0 1.0
21.0
09
0.9 12.0 08
0.8
18.0
15.0 0.7 9.0 0.6
12.0 6.0 0.4
RoAE RoAA 0.5
9.0 3.0 0.2
6.0 0.3 0.0 0.0
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E

FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY11EE

FY12EE

FY13EE
‐3.0 ‐0.2

P/ BV band chart… P/ ABV band chart…

1200 1200
1000 1.9x 1000 2x
800 1.5x 800
600 1x 600 1.5x
400 ` 400 ` 1x
200 0.6x 200 0.6x
0 0
Ap r‐0 2

Ap r‐0 3

Ap r‐0 4

Ap r‐0 5

Ap r‐0 6

Ap r‐0 7

Ap r‐0 8

Ap r‐0 9

Ap r‐1 0

Ap r‐1 1

Ap r‐0 2

Ap r‐0 3

Ap r‐0 4

Ap r‐0 5

Ap r‐0 6

Ap r‐0 7

Ap r‐0 8

Ap r‐0 9

Ap r‐1 0

Ap r‐1 1
Source: Almondz, Company 12
 Bank of Baroda Financials

Profit & Loss (Rs bn)

Profit & Loss (Rs bn) Key Ratios
Key Ratios
Y/E FY09 FY10 FY11E FY12E FY13E Y/E March FY09 FY10 FY11E FY12E FY13E
Interest Income       155.5      172.3      218.8      268.6      329.7 Valuation
Interest Expenses       101.7      110.2      133.3      167.6      211.8 EPS (Rs)    66.9    88.9  100.3  119.0  142.1
Net Interest Income         53.8        62.1        85.6      101.0      117.9 Book Value (Rs)  306.3  371.0  489.6  586.1  702.2
Other Income         28.5        29.7        26.8        31.7        34.8 Adj. Book Value (Rs)  294.0  354.6  473.4  563.6  674.2
Operating Income
Operating Income         82.3
82 3        91.8
91 8      112.3
112 3      132.7
132 7      152.6
152 6 P/E ( )
P/E (x)    14.4
14 4    10.8
10 8       9.6
96       8.1
81       6.8
68
Operating Expenses         37.1        39.8        44.4        51.9        58.1 P/BV (x)       3.1       2.6       2.0       1.6       1.4
Operating Profit         45.1        52.0        67.9        80.8        94.6 P/ABV (x)       3.3       2.7       2.0       1.7       1.4
Provisions and Contengencies         10.2          8.1        10.8        13.0        13.7 Profitability (%)
Profit before Tax         35.0        43.9        57.1        67.8        80.9 RoANW    23.3    25.7    24.0    22.1    22.1
Provision for Tax         11.6        12.4        17.7        21.0        25.1 RoAA       1.2       1.2       1.3       1.2       1.2
Profit after Tax         23.9        32.2        39.4        46.7        55.8 Cost / Income Ratio
/    45.1    43.4    39.5    39.1    38.1
Cost / Avg. Earning Assets       2.0       1.7       1.5       1.5       1.4
Avg. yield on Advances       9.1       7.9       8.4       8.5       8.7
Avg. yield on Investments       7.0       6.6       6.6       6.6       6.6
Avg. cost on Deposits       5.4       4.6       4.6       4.8       5.1
Balance Sheet (Rs bn) Spread       2.6       2.4       2.8       2.8       2.7
Net Interest Margin       2.9       2.6       3.0       2.9       2.8
Y/E FY09 FY10 FY11E FY12E FY13E
Growth (%)
Sources of Funds
Net Interest Income    37.5    15.5    37.7    18.1    16.7
Equity Capital            3.7          3.7          3.9          3.9          3.9
Reserver & Surplus       129.6      153.5      209.9      247.8      293.4
Other Income    38.7       4.2     (9.7)    18.3       9.9
Net Worth       133.2      157.1      213.8      251.7      297.3 Operating Profit    49.0    15.1    30.8    18.9    17.0
Deposits       1,966      2,460      2,992      3,593      4,400 Net Profit    66.1    33.4    23.9    18.7    19.4
Borrowings         74.7        74.1        77.6        80.1        82.7 Credit    36.4    22.1    23.5    22.0    21.8
Oth Li biliti
Other Liabilities       141.8
141 8      151.9
151 9      162.8
162 8      174.5
174 5      184.9
184 9 Deposit    29.3
29 3    25.1
25 1    21.6
21 6    20.1
20 1    22.4
22 4
Total Liabilities        2,316      2,843      3,446      4,100      4,965 C/D ratio    74.0    72.3    73.4    74.5    74.1
Application of Funds Investment / Deposit Ratio    27.3    25.7    24.6    24.4    24.1
Cash & Balance with RBI       109.0      140.8      201.5      216.1      294.7 Asset Quality
Bal. with Banks/ Short Notice       143.0      224.9      232.0      239.2      251.2 NPAs as % to Net Advances (%)       0.3       0.3       0.3       0.3       0.3
Advances       1,456      1,777      2,195      2,678      3,260 Dividend
Investments       536.3      631.6      735.8      877.3  1,059.1 DPS (Rs) 9 15 16.5 20 23
Fixed Assets         23.8        23.7        28.7        32.3        36.3 Efficiency
Other Assets         48.1        44.6        53.5        57.3        63.3 Avg. Business per Employee (Rs cr)       8.2    10.3    11.5    13.2    15.2
Total Assets       2,316      2,843      3,446      4,100      4,965 Avg Profit per Employee (Rs lakh)       5.2       7.4       8.7       9.9    11.2

Source: Almondz, Company 13
 Bank of India “Shinning star”…!!!
Stable earnings growth: BoI’s core and net earnings are Stock Data
expected to grow at 23.1% and 32.1% CAGR during FY10‐13E. Market Cap (Rs. bn) 264.7
The growth is expected to be driven on the back of loan book
Market Cap (USD bn) 6.1
CAGR of 21.5% (despite lower NIMs of 2.5%) and lower credit
cost of 0.65% FY13E. Shares Outstanding (mn) 547.2
Free Float (%)
( ) 34.2%
Asset quality set to stabilize: BoI has reported a huge 3M avg. daily vol. (mn) 0.15
deterioration in its asset quality. Its GNPA and NNPA touched
Shareholding Pattern (%)
2.85% and 1.31% respectively, with slippages of ~ 2.7% in
FY10. Bank’s restructured assets stood at Rs 103.5bn (5.4% of Promoters 65.9%
loan book) and reported slippages of ~18% in these accounts. Institutions 26 4%
26.4%
However since then there has been a gradual improvement Public & Others 7.8%
with GNPA at 2.36% and NNPA at 0.88% (Dec’10). We expect, Stock Performances
BoI’s asset quality to improve over the next couple of years, (%) return 1m 3m 6m 12m
despite factoring slippages at 1.6%
1 6% FY13E.
FY13E Ab l
Absolute 51
5.1 90
9.0 ‐15.8
15 8 34 1
34.1
Return ratios to improve: BoI reported RoE of mere 14.2% Relative ‐1.0 11.9 ‐11.3 24.8
in FY10, on back of lower core earnings and higher credit Stock Information
losses. However, we expect banks RoE at ~19% (after 52 Wk H / L 588/ 310
factoring the recent GoI capital infusion Rs 10.1bn)
10 1bn) during Bl b C d
Bloomberg Code BOI IN
BOI IN
FY11‐13E driven by quality earnings (core earnings) and lower BOI.BO
Reuters Code
credit cost.
CMP 484
View and Valuations: At CMP, the stock trades at Target (1‐yr) 579
1 5xFY12E ABV.
1.5xFY12E ABV We recommend a Buy U id
Upside 20%
Recommendation Buy

Source: Almondz, Company 14
 Bank of India

Loan Book
Loan Book…  Deposit
Deposit… 
Loan Book Rs bn Growth % 40 5000 Depos its  Rs  bn Growth % 30
3300 4500
3000 35
4000 25
2700 30
2400 25 3500
2100 3000 20
1800 20
2500
1500 15 15
2000
1200 10
900 1500 10
600 5 1000
300 0 500 5
FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY044

FY055

FY066

FY077

FY088

FY099

FY100
FY11EE

FY12EE

FY13EE

FY11EE

FY12EE

FY13EE
Core Earning…  NIM movement vis‐à‐vis CD ratio…

115 Core Earning (NII) Rs  bn Growth % 40 80.0 C‐D Ratio NIM % (RHS) 3.1

35 3.0
95 75.0
30
2.9
75 25 70.0 2.8
20
55 15
65.0 2.7
10 60.0 2.6
35
5 2.5
55.0 2.4
15 0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E

50.0 2.3
F Y004

F Y005

F Y006

F Y007

F Y008

F Y009

F Y1 0

F Y11 E

F Y12 E

F Y13 E
Source: Almondz, Company 15
 Bank of India

Spread
Spread…  Non interest income Analysis
Non interest income Analysis…
Yield on funds % No n Interest Inco me Rs bn
10.0 Cost of funds % 2.8 60.0
Spread % No n Interest Inco me as % o f To tal Inco me
9.0 2.6 50.0
Treasury Inco me as % o f No n Interest Inco me
8.0 33 40.0
2.4 31 29
7.0 26 26 30.0
21
2.2 18 16
6.0 12 12 20.0
5.0 2.0 10.0
4.0 1.8 0.0
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY004

FY005

FY006

FY007

FY008

FY009

FY110
FY111E

FY122E

FY133E

FY111E

FY122E

FY133E
Operational Efficiency…  Operating Income…
Opex Rs bn
65.0 CI Ratio
2.0 90.0 Including treas ury Rs  bn
Opex/ A vg asset (RHS) 80.0
55.0 1.8 Exluding trea s ury Rs  bn
70.0
45.0 60.0
1.6 50.0
35.0
14
1.4 40.0
25.0 30.0
1.2 20.0
15.0
10.0
5.0 1.0 0.0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY04

FY05

FY06

FY07

FY08

FY09

FY10
F Y11E

F Y12E

F Y13E

F Y11E

F Y12E

F Y13E
Source: Almondz, Company 16
 Bank of India

Over head Efficiency

Over‐head Efficiency…  Credit Cost
Credit Cost…
1.4 Credi t cos t
1.0
1.0
0.8 0.8 0.8
0.7
06
0.6 06
0.6 06
0.6
0.6 0.6 0.4

0.4

0.2
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

11E

12E

13E

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
FY1

FY1

FY1
Net Profit…  Asset Quality…

Net Profit Rs bn Growth % 120 8.5 GNPA % NNPA %

60 105
90
50 75 6.5
60
40 45
30 4.5
30 15
0
20 ‐15 2.5
‐30
10 ‐45
‐60 0.5
0 ‐75
F Y04

F Y05

F Y06

F Y07

F Y08

F Y09

F Y10

FYY11E

FYY12E

FYY13E

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E
‐1 5
‐1.5

Source: Almondz, Company 17
 Bank of India

Returns Ratio
Returns Ratio… Core Returns Ratios
Core Returns Ratios…
30.0 21.0 1.4
27.0 1.5 18.0 1.2
24.0 1.3
21.0 15.0 1.0
18 0
18.0 11
1.1 12 0
12.0 08
0.8
15.0 0.9 9.0 0.6
12.0 0.7 6.0 0.4
9.0
RoAE RoAA 0.5 3.0 Core RoAE Core RoAA 0.2
6.0
3.0 0.3 0.0 0.0
FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY044

FY055

FY066

FY077

FY088

FY099

FY100
FY11EE

FY12EE

FY13EE

FY11EE

FY12EE

FY13EE
P/ BV band chart… P/ ABV band chart…

550 550
475 1.6x 475 1.8x
400 1.4x 400 1.5x
325 325
1.1x 1.2x
250 250
175 ` 0.9x 1x
175 `
100 100
25 25
Appr‐0 3

Appr‐0 4

Appr‐0 5

Appr‐0 6

Appr‐0 7

Appr‐0 8

Appr‐0 9

Appr‐1 0

Appr‐1 1

Ap rr‐0 3

Ap rr‐0 4

Ap rr‐0 5

Ap rr‐0 6

Ap rr‐0 7

Ap rr‐0 8

Ap rr‐0 9

Ap rr‐1 0

Ap rr‐1 1
Source: Almondz, Company 18
 Bank of India Financials

Profit & Loss (Rs bn)

Profit & Loss (Rs bn) Key Ratios
Key Ratios
Y/E March  FY09 FY10 FY11E FY12E FY13E Y/E March  FY09 FY10 FY11E FY12E FY13E
Interest Income         163.5        178.8       215.2       274.8       338.8 Valuation
Interest Expenses         108.5        121.2       139.5       182.3       231.3 EPS (Rs)      57.2      33.1      50.2      61.6   523.8
Net Interest Income           55.0          57.6         75.7         92.6       107.5 Book Value (Rs)   224.1   243.4   292.4   340.5   544.8
Other Income           30.5          26.2         25.6         29.4         33.3
Adj. Book Value (Rs)   212.1   201.4   264.0   313.0   541.0
p g
Operating Income           85.5          83.7       101.3       121.9       140.8
P/E (x)
P/E (x)        8.6
86      14.8
14 8        9.8
98        7.9
79        1.7
17
Operating Expenses           30.9          36.7         43.8         51.9         59.4
P/BV (x)        2.2        2.0        1.7        1.4        1.2
Operating Profit           54.6          47.0         57.5         70.1         81.4
Provisions and Contengencies           12.9          22.1         19.4         20.5         22.4
P/ABV (x)        2.3        2.4        1.9        1.6        1.3
Profit before Tax           41.6          24.9         38.1         49.6         59.0 Profitability (%)
Provision for Tax           11.6             7.5         10.7         15.9         18.9 RoANW      29.2      14.2      19.1      19.5      18.8
Profit after Tax           30.1          17.4         27.4         33.7         40.1 RoAA        1.5        0.7        0.9        0.9        0.9
Cost / Income Ratio      36.2      43.8      43.2      42.5      42.2
Cost / Avg. Earning Assets        1.6        1.5        1.5        1.5        1.4
Avg. yield on Advances        9.8        8.4        8.6        8.8        9.0
Avg. yield on Investments        7.1        7.5        7.5        7.4        7.4
Avg. cost on Deposits        5.8        5.2        5.0        5.2        5.5
Balance Sheet (Rs bn) Spread        2.4        2.1        2.3        2.3        2.2
Net Interest Margin        2.8        2.4        2.6        2.6        2.5
Y/E March
/ FY09 FY10 FY11E FY12E FY13E Growth (%)
Growth (%)
Sources of Funds
Net Interest Income      30.0        4.7      31.5      22.3      16.1
Equity Capital             5.3            5.3            5.5            5.5            5.5
Other Income      44.2    (14.3)      (2.2)      14.7      13.5
Reserver & Surplus         129.7       137.0       168.8       195.1       235.2
Operating Profit      47.4    (13.8)      22.2      21.9      16.2
Net Worth         134.9       142.3       174.3       200.6       240.7
Deposits     1,897.1    2,297.6    2,812.7    3,393.3    4,154.4 Net Profit      49.7    (42.1)      57.7      22.9      18.9
Borrowings         156.7       224.0       230.5       262.3       274.8 Credit      25.9      17.9      21.2      22.0      21.5
Other Liabilities           66.3         85.7         93.4       101.2       105.5 Deposit      26.5      21.1      22.4      20.6      22.4
Total Liabilities      2,255.0    2,749.7    3,310.9    3,957.4    4,775.5 C/D ratio      75.3      73.3      72.6      73.4      72.9
Application of Funds Investment / Deposit Ratio      27.7      29.2      30.0      29.2      28.9
Cash & Balance with RBI           89.2       156.0       171.6       208.6       269.3 Asset Quality
Bal. with Banks/ Short Notice         128.5       156.3       162.9       168.3       173.8 NPAs as % to Net Advances (%)        0.4        1.3        0.8        0.6        0.6
Advances     1,429.1    1,684.9    2,042.1    2,491.4    3,027.0 Dividend
Investments         526.1       670.8       844.0       992.4    1,201.9 DPS (Rs)        8.0        7.0        9.0      12.0      15.0
Fixed Assets           25.3         23.5         26.2         28.6         30.8
Efficiency
Other Assets           56.9         58.1         64.1         68.2         72.6
Avg. Business per Employee (Rs cr)        7.4        8.6        9.7      11.3        5.9
Total Assets     2,255.0    2,749.7    3,310.9    3,957.4    4,775.5
Avg Profit per Employee (Rs lakh)        6.2        5.6        4.9        6.4        7.4

Source: Almondz, Company 19
 Canara Bank “CAN Bank on it”…!!!
Strong Business momentum: We expect Bank’s business
siness Stock Data
to grow at 21.9% CAGR FY10‐13E driven by Loan book growth
Market Cap (Rs. bn) 283
of 22.5%CAGR supported by CRAR of 14.56% (include profit
of 9MFY11) as on Dec’10 and further raising Capital to the Market Cap (USD bn) 6.5
tune of Rs ~30bn (via QIP). Deposits are expected to grow at Shares Outstanding (mn) 443
21.5% CAGR. Free Float (%) 32%
Better Earnings: Core earnings to grow at 24.6% CAGR FY10‐
3M avg. daily vol. (mn) 0.13
13E after factoring in 23bps decline in NIM to 2.8% FY13E. Shareholding Pattern (%)
Net Earnings to rise 19.4% CAGR, despite Opex rise of 17% Promoters 67.7%
and provisions rise of 16.5% respectively. Institutions 27.3%
Asset Quality stable: Asset Quality expected to be stable, Public & Others 5.1%
after factoring slippage of 1.6%. We expect GNPA and NPA to Stock Performances
be 1.27% and 0.91% respectively for FY13E. Restructured (%) return 1m 3m 6m 12m
assets of Rs 87.4bn (4.6% of advances) in line with peers, Absolute 4.8 2.6 0.4 51.9
however slippages in these accounts are comparatively lower Relative ‐1.3 5.5 5.0 42.6
(Rs 6.5bn, 0.3% of total loan book).
Stock Information
Better efficiencyy and Return Ratios: CAN Bank standout on 52 Wk H / L
/ Rs. 844 / 345
/
various business efficiency parameters (Business and Profit Bloomberg Code CBK.IN
/Branch and Emp, CASA /Branch). The Bank also reported Reuters Code CNBK.BO
(Mar’10) better return ratios – RoAE 26.8% and RoA ‐1.52%.
CMP 638
View and Valuations : At CMP, the stock trades at Target (1‐yr)
Target (1 yr) 812
1.6xFY12E ABV. We recommend a Buy Upside 27%
Recommendation Buy

Source: Almondz, Company 20
 Canara Bank

Loan Book
Loan Book…  Deposit
Deposit… 
Loa n Book Rs  bn Growth % 35 5000 Depos its  Rs bn Growth % 30
3300
3000 30 4500
2700 4000 25
25
2400 3500
2100 20 3000 20
1800 15 2500
1500 15
1200 10 2000
900 5 1500 10
600 1000
300 0 500 5
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E

FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY11EE

FY12EE

FY13EE
Core Earning…  NIM movement vis‐à‐vis CD ratio…

115 Core Earning (NII) Rs  bn Growth % 50 80.00 C‐D Ratio NIM % (RHS) 3.3

40 75.00 3.1
95
30
70.00 2.9
75 20
65.00 2.7
55 100
0 60.00 2.5
35 55.00 2.3
‐10
15 ‐20 50.00 2.1
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E

FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
F Y11E
F Y12E
F Y13E
Source: Almondz, Company 21
 Canara Bank

Spread
Spread…  Non interest income Analysis
Non interest income Analysis…
Yield on funds % No n Interest Inco me Rs bn
12.0 Cost of funds %
60.0
3.2 No n Interest Inco me as % o f To tal Inco me
11.0 Spread % 50.0
3.0
10.0 Treasury Inco me as % o f No n Interest Inco me
2.8 40.0
9.0 29
2.6 29 27
8.0 22 23 24 30.0
20
7.0 2.4 15 14 15 20.0
6.0 2.2
10.0
5.0 2.0
4.0 1.8 0.0

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

11E

12E

13E
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E

FY1

FY1

FY1
Operational Efficiency…  Operating Income…
Opex Rs bn
65.0 CI Ratio
2.2 90.0 Including treasury Rs bn
Opex/ Avg asset (RHS) 80.0
55.0 2.0 Exluding treasury Rs  bn
70.0
45.0 1.8 60.0
50.0
35.0 1.6 40.0
25.0 1.4 30.0
20.0
15.0 1.2 10.0
5.0 1.0 0.0 FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E
F Y04

F Y05

F Y06

F Y07

F Y08

F Y09

F Y10

FYY11E

FYY12E

FYY13E

Source: Almondz, Company 22
 Canara Bank

Over head Efficiency

Over‐head Efficiency…  Credit Cost
Credit Cost…

2.6 Credi t cos t

1.0

0.8

0.6 1.3 0.8 0.8 0.8

0.7 0.5
0.5 0.5
0.4 0.4

0.2
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E

FY044

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
Net Profit…  Asset Quality…

Net Profit Rs bn Growth % 55 7.0 GNPA % NNPA %

60
6.0
50 40
5.0
40 25 4.0
30 30
3.0
10
20 2.0
10 ‐5
1.0
0 ‐20 0.0 F Y04

F Y05

F Y06

F Y07

F Y08

F Y09

F Y10

FYY11E

FYY12E

FYY13E
F Y04

F Y05

F Y06

F Y07

F Y08

F Y09

F Y10

FYY11E

FYY12E

FYY13E

Source: Almondz, Company 23
 Canara Bank

Return Ratio
Return Ratio… Core Return Ratios
Core Return Ratios…
30.0 1.5 27.0
27.0 1.4 24.0 1.2
24.0 1.3 21.0 1.0
21.0 18.0 0.8
11.22
18.0 15.0 0.6
1.1
15.0 12.0
12.0 1.0 9.0 0.4
9.0 RoAE RoAA 0.9 6.0 Core RoAE Core RoAA 0.2
6.0 0.8 3.0 0.0
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY004

FY005

FY006

FY007

FY008

FY009

FY110
FY111E

FY122E

FY133E

FY111E

FY122E

FY133E
P/ BV band chart… P/ ABV band chart…

775 775
700 1.8x 700 2x
625 625
550 1.4x 550 1.6x
475 475
400 1.1x 400 1.3x
325 325
250 ` 0.8x 250 ` 1x
175 175
100 100
25 25
Apr‐03

Apr‐04

Apr‐05

Apr‐06

Apr‐07

Apr‐08

Apr‐09

Apr‐10

Apr‐11

Apr‐03

Apr‐04

Apr‐05

Apr‐06

Apr‐07

Apr‐08

Apr‐09

Apr‐10

Apr‐11
Source: Almondz, Company 24
 Canara Bank Financials

Profit & Loss (Rs bn)

Profit & Loss (Rs bn) Key Ratios
Key Ratios
Y/E M arch FY09 FY10 FY11E FY12E FY13E Y/E M arch  FY09 FY10 FY11E FY12E FY13E
Interest Incom e     171.2     187.5     230.8     287.1     356.4 Valuation
Interest Expenses     124.0     130.7     150.1     193.4     246.4 EPS (Rs) 50.5 73.7 89.0 97.9 116.3
Net Interest Incom e       47.2       56.8       80.7       93.6     110.0 Book Value (Rs) 244.9 305.8 387.0 451.2 527.8
Other Incom e       23.1       28.6       23.7       26.8       29.5 Adj. Book Value (Rs) 208.1 261.9 343.2 396.6 463.9
Operating Incom e       70.3     85.4   104.4   120.4   139.5 P/E (x)   12.6     8.7       7.2      6.5      5.5
Operating Expenses       30.7       34.8       45.4       49.6       55.7 P/BV (x)       2.6       2.1        1.7       1.4       1.2
Operating Profit       39.6       50.6       59.0       70.8       83.8 P/ABV (x)       3.1       2.4        1.9       1.6       1.4
Provisions and Contengencies       13.9       12.4         9.4       15.2       17.8 Profitability (% )
Profit before Tax       25.7       38.2       49.6       55.6       66.0 RoANW     22.6     26.8      26.6     23.4     23.8
Provision for Tax         5.0         8.0       10.2       12.2       14.5 RoAA       1.0       1.2        1.4       1.2       1.2
P fit ft T
Profit after Tax       20.7
20 7     30.2
30 2     39.4
39 4     43.4
43 4     51.5
51 5 C t/I
Cost / Incom e Ratio
R ti 43 6
43.6 40 7
40.7 43 5
43.5 41 2
41.2 39 9
39.9
Cost / Avg. Earning Assets 1.7 1.6 1.7 1.5 1.4
Avg. yield on Advances 10.4 9.1 9.1 9.4 9.6
Avg. yield on Investm ents 7.6 7.2 7.6 7.5 7.5
Avg. cost on Deposits 6.7 5.8 5.7 6.0 6.3
Balance Sheet (Rs bn)
Spread 2.4 2.4 2.8 2.7 2.6
Y/E M arch
Y/E M FY09 FY10 FY11E FY12E FY13E Net Interest M argin
Net Interest M 26
2.6 25
2.5 30
3.0 29
2.9 28
2.8
Sources of Funds G row th (% )
Equity Capital 4.1 4.1 4.4 4.4 4.4 Net Interest Incom e     33.4     20.4      42.1     16.0     17.5
Reserver & Surplus 118.0 142.6 188.4 216.8 250.7 Other Incom e       4.4     23.7     (17.0)     13.1     10.0
Net W orth 122.1 146.7 192.8 221.2 255.2 Operating Profit     33.9     27.7      16.6     19.9     18.4
Deposits 1868.9 2346.5 2824.6 3441.1 4205.8 Net Profit     32.4     45.8      30.5     10.0     18.8
Borrowings 83.2 21.6 32.0 37.2 45.5 Credit   28.9   22.5    23.9   22.0   21.7
Other Liabilities 122.2 132.6 140.6 152.4 165.9 Deposit     21.3     25.6      20.4     21.8     22.2
Total Liabilities  2196.5 2647.4 3190.0 3851.9 4672.4 C/D ratio     74.0     72.2      74.3     74.4     74.0
Application of Funds Investm ent / Deposit Ratio     30.9     29.7      29.0     28.4     28.0
Cash & Balance with RBI 100.4 157.2 170.1 206.3 268.0 Asset Quality
Bal. with Banks/ Short Notice 66.2 39.3 40.9 42.8 44.5 NPAs as %  to Net Advances (% ) 1.1 1.1 0.9 0.9 0.9
Advances 1382.2 1693.3 2097.4 2559.1 3113.6 Dividend
Investm ents 577.8 696.8 818.6 977.5 1177.6 DPS (Rs)       8.0     10.0      13.0     15.0     17.5
Fixed Assets 29.3 28.6 30.0 32.0 33.4 Efficiency
Other Assets 40.6 32.2 33.1 34.2 35.3 Avg. Business per Em ployee (Rs cr) 6.7 8.4 9.6 11.1 13.3
Total Assets 2196.5 2647.4 3190.0 3851.9 4672.4 Avg Profit per Em ployee (Rs lakh) 4.1 5.9 7.4 25
8.4 9.5

Source: Almondz, Company 25
 Punjab National Bank “Ever green performer”…!!!
Return ratios better: PNB has reported one of the best Stock Data
return ratios over the period FY05‐10 with an RoAE of 21% Market Cap (Rs. bn) 379.2
and RoAA of 1.2% respectively. Going forward, the return
Market Cap (USD bn) 8.7
ratios are expected to be on higher side driven by strong
business momentum coupled with higher CASA and higher Shares Outstanding (mn) 317
NIMs. F Fl t (%)
Free Float (%) 42%
3M avg. daily vol. (mn) 0.35
Driven by higher NIMs and business momentum: PNB Shareholding Pattern (%)
has delivered higher NIMs (3.5%+) across crest & trough of 58.0%
Promoters
the economy cycles and is expected to continue with the
Institutions 36 9%
36.9%
same on back of higher CASA (~40%) over the FY10‐13E.
Public & Others 5.1%
And higher business momentum: PNB has reported a Stock Performances
robust business growth (above industry) momentum with (%) return 1m 3m 6m 12m
loan book growth of 25% over FY05‐FY10. Absolute 10 8
10.8 04
0.4 ‐9 1
‐9.1 15 4
15.4
Despite deterioration in asset quality: PNB’s Asset Quality Relative 4.7 3.3 ‐4.6 6.1
has deteriorated over the period, with current GNPA ‐ 2.03% Stock Information
(1.71% in FY10) and NNPA ‐ 0.72% (0.53% in FY10) 52 Wk H / L 1395/ 933
respectively.
p y Further the PCR has also declined to 65% ((69% Bloomberg Code
Bloomberg Code PNB IN
PNB IN
in FY10). Banks restructured assets stood at 6.5% (highest Reuters Code PNBK.BO
amongst large peers), however slippages were marginally on
CMP 1197
lower side. We have expected higher slippages of 2% in
FY13E. Target (1‐yr) 1360
Upside 13.7%
View and Valuations : At CMP, the stock trades at Recommendation Accumulate
1.8xFY12E ABV. We recommend a Buy`

Source: Almondz, Company 26
 Punjab National Bank

Loan Book
Loan Book…  Deposit
Deposit… 
Loan Book Rs  bn Growth % 35 Depos i ts  Rs  bn Growth % 30
3300 4500
3000 30
2700 25
25 3500
2400
2100 20 20
1800 15 2500
1500
1200 10 1500 15
900 5
600
300 0 500 10

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E
FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E
Core Earning…  NIM movement vis‐à‐vis CD ratio…
175 Core Earni ng (NII) Rs  bn Growth % 50 80 C‐D Ratio NIM % (RHS) 4.4
155 40 75 4.2
135
115 30 70 4.0
95 20 65 3.8
75 10
55 60 3.6
35 0 55 3.4
15 ‐10 50 3.2
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E
Source: Almondz, Company 27
 Punjab National Bank

Spread
Spread…  Non interest income Analysis
Non interest income Analysis…
Yield on funds % No n Interest Inco me Rs bn
12.0 Cost of funds % 4.5 80.0
11.0 Spread % No n Interest Inco me as % o f To tal Inco me
10.0 4.0 60.0
Treasury Inco me as % o f No n Interest Inco me 44
9.0 39
31 36 33 40.0
8.0 3.5 20
19 17
7.0 13 10 20.0
6.0 3.0
5.0 0.0

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
4.0 2.5
‐20.0
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E
‐40.0

Operational Efficiency…  Operating Income…
Opex Rs bn
85.0 CI Ratio
3.0 140.0 Including treas ury Rs  bn
75.0 Opex/ A vg asset (RHS) 120.0 Exluding treas ury Rs  bn
65.0 2.5
100.0
55.0 2.0 80.0
45.0
15
1.5 60.0
35 0
35.0
25.0 40.0
1.0
15.0 20.0
5.0 0.5 0.0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY04

FY05

FY06

FY07

FY08

FY09

FY10
F Y11E

F Y12E

F Y13E

F Y11E

F Y12E

F Y13E
Source: Almondz, Company 28
 Punjab National Bank

Over head Efficiency

Over‐head Efficiency…  Credit Cost
Credit Cost…
0.8 2.5 Credit cos t
0.7
0.6
0.5 0.9 0.8 0.8
0.4 0.6 0.5 0.5
0.4 0.3
0.3
0.3
0.2

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY11EE

FY12EE

FY13EE
Net Profit…  Asset Quality…

Net Profit Rs bn Growth % 10.00 GNPA % NNPA %

60
45 8.00
50
40 6.00
30
30
4 00
4.00
20 15
10 2.00

0 0 0.00
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E
FY04

FY05

FY06

FY07

FY08

FY09

FY10

F Y11E

F Y12E

F Y13E

Source: Almondz, Company 29
 Punjab National Bank

Return Ratio
Return Ratio… Core Return Ratios
Core Return Ratios…
30.0 1.5 23.7 1.3
27.0 1.4 20.7 1.2
24.0 17.7 1.1
1.3
21 0
21.0 14.7 1.0
1.2 11.7 0.9
18.0
1.1 8.7 0.8
15.0 5.7 0.7
12.0 1.0
RoAE RoAA 2.7 Core RoAE Core RoAA 0.6
9.0 0.9 ‐0.3 0.5
FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY044

FY055

FY066

FY077

FY088

FY099

FY100
FY11EE

FY12EE

FY13EE

FY11EE

FY12EE

FY13EE
P/ BV band chart… P/ ABV band chart…

1225 1225
1.7x 1100 1.9x
1100
975 975
850 1.5x 850 1.6x
725 1.2x 725 1.3x
600 600
475 ` 1x 475 ` 1x
350 350
225 225
100 100
Apr‐03

Apr‐04

Apr‐05

Apr‐06

Apr‐07

Apr‐08

Apr‐09

Apr‐10

Apr‐11
Apr‐03

Apr‐04

Apr‐05

Apr‐06

Apr‐07

Apr‐08

Apr‐09

Apr‐10

Apr‐11

Source: Almondz, Company 30
 Punjab National Bank Financials

Profit & Loss (Rs bn)

Profit & Loss (Rs bn) Key Ratios
Key Ratios
Y/E M arch FY09 FY10 FY11E FY12E FY13E Y/E M arch  FY09 FY10 FY11E FY12E FY13E
Interest Incom e 191.3 214.7 273.5 339.4 419.1 V aluation
Interest Expenses     123.0     129.4     153.6     201.9     257.1 EPS (Rs) 98.0 123.9 137.9 164.5 195.5
Net Interest Incom e 68.3 85.2 119.9 137.5 162.0 Book Value (Rs) 416.7 514.8 626.6 755.8 910.2
Other Incom e       30.6       35.7       32.8       38.9       44.5 Adj. Book Value (Rs) 408.4 473.6 571.3 672.6 814.8
Operating Incom e 99.0 120.9 152.7 176.4 206.5 P/E (x) 12.2 9.7 8.7 7.3 6.1
Operating Expenses       42.1       47.6       65.2       70.8       80.8 P/BV (x) 2.9 2.3 1.9 1.6 1.3
Operating Profit 56.9 73.3 87.5 105.5 125.6 P/ABV (x) 2.9 2.5 2.1 1.8 1.5
Provisions and Contengencies         9.2       14.2       22.3       26.6       31.8 Profitability (% )
Profit before Tax 47.7 59.0 65.2 78.9 93.8 RoAN W 24.3 28.0 26.4 25.5 24.9
Provision for Tax       16.8       20.0       21.5       26.8       31.9 RoAA 1.4 1.4 1.3 1.3 1.3
P fit ft T
Profit after Tax 30 9
30.9 39 1
39.1 43 7
43.7 52 1
52.1 61 9
61.9 C t/I
Cost / Incom e Ratio
R ti 42 5
42.5 39 4
39.4 42 7
42.7 40 2
40.2 39 2
39.2
Cost / Avg. Earning Assets 2.5 2.5 2.5 2.5 2.5
Avg. yield on Advances 10.6 9.8 10.0 10.3 10.4
Avg. yield on Investm ents 7.3 6.5 6.7 6.5 6.6
Avg. cost on Deposits 6.1 5.2 5.1 5.4 5.6
Balance Sheet (Rs bn)
Spread 3.3 3.5 4.0 3.7 3.6
Y/E M arch
Y/E M FY09 FY10 FY11E FY12E FY13E N et
et Interest M
Interest M argin 3.4
34 3.5
35 4.0
40 3.8
38 3.7
37
Sources of Funds G row th (% )
Equity Capital 3.2 3.2 3.2 3.2 3.2 N et Interest Incom e 23.4 24.8 40.6 14.7 17.8
Reserver & Surplus 143.4 174.1 210.3 251.2 300.1 Other Incom e 53.4 16.3 ‐8.0 18.5 14.4
Net W orth 146.5 177.2 213.4 254.4 303.3 Operating Profit 42.0 28.7 19.5 20.6 19.0
Deposits 2097.6 2493.3 3026.4 3691.7 4541.7 N et Profit 50.9 26.4 11.9 19.3 18.9
g
Borrowings 124.6 192.6 233.1 268.2 298.7 Credit 29.5 20.6 24.3 22.0 23.0
Other Liabilities 100.4 103.2 108.9 112.6 119.9 Deposit 26.0 18.9 21.4 22.0 23.0
Total Liabilities  2469.2 2966.3 3581.8 4326.9 5263.5 C/D ratio 73.8 74.8 76.6 76.6 76.6
Application of Funds Investm ent / Deposit Ratio 30.2 31.2 30.5 30.0 29.4
Cash & Balance with RBI 170.6 183.3 190.5 235.1 285.4 A sset Q uality
Bal. with Banks/ Short Notice 43.5 51.5 56.3 59.6 62.6 N PAs as %  to Net A dvances (% ) 0.2 0.5 0.6 0.8 0.8
Advances 1547.0 1866.0 2318.5 2828.6 3479.2 Dividend
Investm ents 633.9 777.2 924.5 1107.1 1336.6 DPS (Rs) 20.0 22.0 25.0 30.0 35.0
Fixed Assets 24.0 25.1 25.5 25.7 25.7 Efficiency
Other Assets 50.2 63.2 66.5 70.8 74.0 Avg. Business per Em ployee (Rs cr) 5.6 7.0 8.1 9.6 11.4
Total Assets 2469.2 2966.3 3581.8 4326.9 5263.5 Avg Profit per Em ployee (Rs lakh) 4.4 6.1 6.9 31
7.7 8.9

Source: Almondz, Company 31
 Union Bank of India “Set for 2 nd innings”…!!!

Asset Quality worries behind us: UBI reported a much Stock Data

higher deterioration in asset quality with slippages rising to Market Cap (Rs. bn) 182.1
~2% and GNPA & NNPA to 2.68% & 1.21% respectively.
Market Cap (USD bn) 4.2
Restructured assets stood at Rs 52.6bn (3.9% of loan book)
with a slippages of ~14
14.5%
5% in these assets.
assets We expect the Shares Outstanding (mn) 524.3
slippages to be comparatively lower (1.4%) and the GNPA and Free Float (%) 42%
NNPA to be 2.22% and 0.86% respectively by FY13E. 3M avg. daily vol. (mn) 0.78
Business growth to continue: UBI is expected to report Shareholding Pattern (%)
22.9%
22 9% CAGR loan book growth and 21.8%
21 8% Deposits growth Promoters 58.0%
during FY10‐13E, with CASA proportion of 33% by FY13E. Institutions 27.1%
Public & Others 14.9%
Higher core earnings growth: The continued business
momentum is expected to drive banks core earnings by Stock Performances
26 4% after factoring a Margin dip of ~30bps
26.4% 30bps to 2.9%.
2 9% (%) return
(%) return 1m 3m 6m 12m
However, the higher credit cost is expected to drive its net Absolute 6.2 8.6 ‐13.8 14.6
earnings by 14.3% CAGR during FY10‐13E. Relative 0.1 11.5 ‐9.2 5.3
View and Valuations: At CMP, the stock trades at Stock Information
1 6xFY12E ABV.
1.6xFY12E ABV We recommend a Buy.
Buy 52 Wk H / L
52 Wk H / L 426/ 275
426/ 275
Bloomberg Code UNBK IN
Reuters Code UNBK.BO
CMP 347
Target (1‐yr)
Target (1‐yr) 409
Upside 18%
Recommendation Buy
Source: Almondz, Company 32
 UNION BANK of INDIA

Loan Book
Loan Book…  Deposit
Deposit… 
Loa n Book Rs  bn Growth % (RHS) 50 3500 Depos i ts  Rs  bn Growth % 40
2200 35
40
3000
1800 2500 30
30 25
1400 2000
000
20
1000 20 1500
15
1000 10
600 10
500 5
200 0 0 0
FFY04

FFY05

FFY06

FFY07

FFY08

FFY09

FFY10

FYY11E

FYY12E

FYY13E

FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E
Core Earning…  NIM movement vis‐à‐vis CD ratio…

95 Core Ea rni ng (NII) Rs  bn Growth % 50 75 3.4

85 3.2
40 70
75
3.0
65 30 65
55 2.8
20 60
45 2.6
35 55 2.4
10 C‐D Ra ti o NIM % (RHS)
25
15 0 50 2.2
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

Source: Almondz, Company 33
 UNION BANK of INDIA

Spread
Spread…  Non interest income Analysis
Non interest income Analysis…
Yield o n funds % Co st o f funds % No n Interest Income Rs bn
12.0 Spread % (RHS)
3.4 60.0
No n Interest Income as % o f To tal Inco me
11.0 3.2 50.0
Treasury Inco me as % o f No n Interest Inco me
10.0
9.0 3.0 40.0
8.0 2.8 30.0
20.9 22.8
7.0 2.6 19.7 19.1
7.7 10.9 14.8 20.0
6.0 8.3
2.4 4.9 6.9
5.0 10.0
4.0 2.2 0.0
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E

FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E
Operational Efficiency…  Operating Income…
Opex Rs bn
OpexRs
55.0 CI Ratio 2.1 70.0 Incl udi ng trea s ury Rs  bn
Opex/ Avg asset (RHS) 1.9 60.0
45.0 Exl uding trea s ury Rs  bn
1.7 50.0
35.0 1.5 40.0
1.3
25.0 30.0
1.1
0.9 20.0
15.0
0.7 10.0
5.0 0.5 0.0
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

Source: Almondz, Company 34
 UNION BANK of INDIA

Over head Efficiency

Over‐head Efficiency…  Credit Cost
Credit Cost…

0.8 2.2 Credit cos t (%)

0.7

06
0.6 10
1.0 0.9
0.8 0.9
0.5 0.5 0.5 0.6 0.6
0.3
0.4
0.3

FY044

FY055

FY066

FY077

FY088

FY099

FY100
FY044

FY055

FY066

FY077

FY088

FY099

FY100

FY11EE

FY12EE

FY13EE
FY11EE

FY12EE

FY13EE
Net Profit…  Asset Quality…

8.5% GNPA % NNPA %

35 Net Profit Rs bn Growth % (RHS)
30 65 6.5%
25 50
20 4.5%
35
15
20 2.5%
10
5 5
0.5%
0 ‐10
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FFY11E

FFY12E

FFY13E
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11E

FY12E

FY13E

‐1.5%

Source: Almondz, Company 35
 UNION BANK of INDIA

Returns Ratio
Returns Ratio… Core Returns Ratios
Core Returns Ratios…
29 RoAE (%) RoAA (%) 1.35 18.0 1.05
27 1.25 0.95
25 15.0 0.85
1.15
23 0.75
1.05 12.0 0.65
21
0.95 0.55
19
0.85 9.0 0.45
17 Core RoAE (%) Core RoAA (%) 0.35
15 0.75 6.0 0.25
FYY04

FYY05

FYY06

FYY07

FYY08

FYY09

FYY10

FY111E

FY112E

FY113E

FY004

FY005

FY006

FY007

FY008

FY009

FY110

FY111E

FY122E

FY133E
P/ BV band chart… P/ ABV band chart…

375 375
1.7x 1.9x
300 1.4x 300 1.6x
225 225
1.1x 1.2x
150 150
` 0.8x ` 0.9x
75 75
0 0
Appr‐0 3

Appr‐0 4

Appr‐0 5

Appr‐0 6

Appr‐0 7

Appr‐0 8

Appr‐0 9

Appr‐1 0

Appr‐1 1

Appr‐0 3

Appr‐0 4

Appr‐0 5

Appr‐0 6

Appr‐0 7

Appr‐0 8

Appr‐0 9

Appr‐1 0

Appr‐1 1
Source: Almondz, Company 36
 Union Bank of India Financials

Profit & Loss (Rs bn)

Profit & Loss (Rs bn) Key Ratios
Key Ratios
Y/E March FY09 FY10 FY11E FY12E FY13E Y / E  M a rch   FY09 FY10 FY11E FY12E FY13E
Interest Income         118.9         133.0         164.1         206.6         255.9 V a lu a tio n
Interest Expenses           80.8           91.1         103.0         134.3         171.1 E P S  (R s) 3 4 .2 4 1 .1 3 9 .5 4 9 .4 5 9 .1
Net Interest Income           38.1           41.9           61.1           72.2           84.7 B o o k V a lu e  (R s) 1 3 9 .7 1 7 4 .4 2 1 4 .2 2 5 5 .6 3 0 4 .8
Other Income           14.8           19.7           19.1           20.9           22.8 A d j. B o o k V a lu e  (R s) 1 3 3 .2 1 5 5 .3 1 8 8 .2 2 2 2 .4 2 6 8 .5
Operating Income           53.0         61.7         80.2         93.1       107.5 P /E  (x) 1 0 .4 8 .6 9 .0 7 .2 6 .0
Operating Expenses           22.1           25.1           34.1           37.0           41.1 P /B V  (x) 2 .5 2 .0 1 .7 1 .4 1 .2
Operating Profit           30.8           36.6           46.2           56.1           66.4 P /A B V  (x) 2 .7 2 .3 1 .9 1 .6 1 .3
Provisions and Contengencies             7.4             8.3           15.1           17.5           20.1 P ro fita b ility  (% )
Profit before Tax           23.4           28.3           31.0           38.7           46.2 RoANW 2 7 .2 2 6 .2 2 0 .7 2 1 .0 2 1 .1
Provision for Tax             6.2             7.6           10.3           12.8           15.3 RoAA 1 .2 1 .2 1 .0 1 .0 1 .0
P fit ft T
Profit after Tax           17.3
17 3         20.7
20 7         20.7
20 7         25.9
25 9         31.0
31 0 C o st / In
t / I co m e  R
R a tio
ti 4 1 .8
8 4 0 .7
7 4 2 .5
5 3 9 .7
7 3 8 .3
3
C o st / A vg . E a rn in g  A ssets 1 .7 1 .6 1 .7 1 .5 1 .4
A vg . yie ld  o n  A d va n ces 1 0 .4 9 .0 9 .1 9 .3 9 .5
A vg . yie ld  o n  In ve stm en ts 7 .4 7 .2 7 .2 7 .2 7 .2
A vg . co st o n  D e p o sits 6 .1 5 .5 5 .5 5 .5 5 .8
Balance Sheet (Rs bn)
S p rea d 3 .1 2 .6 3 .1 3 .0 2 .9
Y/E March
Y/E March FY09 FY10 FY11E FY12E FY13E N et In
et In te rest
rest M
M a rg in 3 .0
0 2 .6
6 3 .1
1 3 .0
0 2 .9
9
Sources of Funds G ro w th  (% )
Equity Capital             5.1             5.1             5.2             5.2             5.2 N et In te rest In co m e 2 3 .6 9 .9 4 5 .8 1 8 .2 1 7 .3
Reserver & Surplus           82.4           99.2         123.2         144.9         170.7 O th e r In co m e 3 6 .4 3 3 .2 ‐3 .2 9 .2 9 .4
Net Worth           87.4         104.2         128.4         150.2         176.0 O p e ra tin g  P ro fit 1 9 .4 1 8 .7 2 6 .2 2 1 .6 1 8 .3
Deposits     1,387.0     1,700.4     2,059.5     2,498.7     3,069.5 N et P ro fit 2 4 .5 2 0 .2 ‐0 .2 2 5 .1 1 9 .6
Borrowings           87.7           92.2         113.8         138.6         148.8 C red it 2 9 .8 2 3 .6 2 4 .2 2 2 .0 2 2 .5
Other Liabilities           47.6           54.8           56.1           66.6           73.6 D ep o sit 3 3 .5 2 2 .6 2 1 .1 2 1 .3 2 2 .8
Total Liabilities      1,609.8     1,951.6     2,357.8     2,854.0     3,467.8 C /D  ra tio 6 9 .6 7 0 .2 7 2 .0 7 2 .4 7 2 .2
Application of Funds In v estm e n t / D ep o sit R a tio 3 1 .0 3 2 .0 3 1 .9 3 1 .8 3 1 .3
Cash & Balance with RBI           89.9         124.7         120.5         146.9         179.6 A sse t Q u a lity
Bal. with Banks/ Short Notice           69.9           33.1           36.5           38.4           41.8 N P A s a s %  to  N e t A d va n ces (% ) 0 .3 0 .8 0 .9 1 .0 0 .9
Advances         965.3     1,193.2     1,481.9     1,807.9     2,214.7 D iv id e n d
Investments         430.0       544.0       657.6       795.3       961.7 D P S  (R s) 5 .0 5 .5 5 .8 7 .3 9 .0
Fixed Assets           23.4           23.1           25.9           28.1           30.7 E fficie n cy
Other Assets           31.2           33.6           35.5           37.4           39.4 A vg . B u s/ E m p  (R s m n ) 7 5 .1 8 9 .2 9 6 .6 1 1 2 .7 1 3 0 .9
Total Assets     1,609.8     1,951.6     2,357.8     2,854.0     3,467.8 A vg  P ro fit/ E m p  (R s la kh ) 5 .7 6 .5 6 .2 6 .7 7 .8

Source: Almondz, Company 37
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Disclaimer
This Document has been prepared by Almondz Global Securities Ltd. The information, analysis and estimates contained herein are based on
Almondz’s assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient
only.
l Thi
This d
document, t att b
best,
t represents
t Al
Almondz
d opinion
i i and d iis meantt ffor generall iinformation
f ti only.
l Almondz,
Al d its
it directors,
di t officers
ffi or employees
l
shall not in anyway be responsible for the contents stated herein. Almondz expressly disclaims any and all liabilities that may arise from information,
errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Almondz, its
affiliates and their employees may from time to time hold positions in securities referred to herein. Almondz or its affiliates may from time to time
38
solicit from or perform investment banking or other services for any company mentioned in this document.
38