PNB: Decline in investment yield

ANALYSTS' CORNER

JM Morgan Stanley retains its "underweight" view on Punjab National Bank. Its second quarter earnings stood at Rs 420 crore, up two per cent y-o-y. It reported growth in earnings only through significant write-back of provisions.

Loan growth was 23 per cent, as compared to 30 per cent growth in system loans. Retail loans grew by 35 per cent. But deposit growth lagged loan growth at 16 per cent. The report believes that there is little scope for any further improvement of funding cost for PNB.

Moreover, yield on investments continued to decline. Continued repricing of bonds will likely result in weak NII growth. Fee income declined by three per cent and is expected to remain weak.

Operating expenses grew by 12 per cent and employee expenses grew by eight per cent, aided by the lack of further amortisation on account of VRS. The bank wrote back Rs 240 crore of floating provisions. This resulted in loan loss coverage ratio falling to 94 per cent from 99 per cent. Exposure to rising rates is also a concern.

IDFC: Improvement in asset quality

Merrill Lynch maintains "buy" on IDFC. The quarterly results were marginally lower than estimates. Income grew 40 per cent y-o-y to Rs 104 crore led by strong topline growth, rising fee income and equity gains of Rs 41 crore.

Reported topline grew 65 per cent on fee income and equity gains. Net interest income on infrastructure loans grew 11 per cent, as NIMs contracted 90bps and loans grew 49 per cent. Gross NPLs decline to 0.55 per cent from 0.7 per cent in Q1.

Improvement in asset quality was the highlight as a decline in gross NPL was also supported with a rise in coverage levels back to 100 per cent. Despite realising gains of Rs 93 crore on its equity investments, IDFC still has Rs 240 crore of unrealised gains.

The report expects it to realise a part of this over next six months, a higher realisation would however positively surprise. C ratio increased to seven per cent, still the best in the sector:

UltraTech Cement: Fall in EBITDA

Enam Securities rates UltraTech Cement as an "outperformer", relative to the sector. The company reported an eight percent y-o-y increase in revenues at Rs 634.5 crore (Rs 587.8 crore in Q2 FY05).

EBITDA however reduced by 31.1 per cent y-o-y to Rs 64.9 crore with EBITDA margins dropping from 16 per cent in Q2 FY05 to 10.6 per cent. The lower margins were on the back of higher freight (higher by 40 per cent) and higher maintenance expenses, arising out of plant shutdown.

Floods in key markets of western and central India impacted performance leading to lower volumes in domestic as well as export market. Sales volume (including clinker exports) touched 2.95 million tonne.

Clinker exports were lower at 0.22 mn (0.3 mn tonne in Q1 FY06) and cement sales were lower at 2.7 mn tonne (3.9 mn tonne in Q1 FY06). Domestic, as well as, export realisations were higher on y-o-y basis. Clinker realisation was up by 13 per cent. Domestic realisation rose seven per cent.