Formed in 1895, Punjab & Sind Bank (PSB) is a nationalised bank with major presence in North India and a network consisting of 926 branches and 63 ATM’s. PSB intends to garner up to Rs 480-crore via this IPO to augment its capital base for meeting the capital adequacy norms. Post the offer, the bank’s capital adequacy ratio (CAR) will rise to over 15 per cent from 13.04 per cent as on September 30. The funds raised through this IPO should be able to take care of the bank’s credit growth requirement over the next two-three years.
Growing fast
PSB has recorded stellar performance in the last five years, with advances and deposits posting compounded annual growth of 36 per cent and 28 per cent, respectively. The bank has registered a CAGR of 21.1 per cent in net total income, 35.6 per cent in operating income and 15.1 per cent in net profit over the period FY06-2010.
Likewise, its net non performing assets ratio has shrunk from 8.11 per cent in 2004-05 to 0.36 per cent in 2009-10. Notably, it’s provisioning coverage ratio stands at 83 per cent, way ahead of the RBI’s stipulated guideline of 70 per cent. The bank’s exposure to the scam-tainted commercial real estate and the micro-finance sector is also very limited and provides comfort .
| STRONG GROWTH | |||
| in Rs crore | FY09 | FY10 | H1-FY11 |
| NII** | 1,012 | 1,184 | 781 |
| Net Profit | 434 | 501 | 276 |
| NIM (%) | 3.20 | 2.70 | NA |
| BV (Rs / share) | 78 | 105 | 128* |
| * On post issue basis; **Net Interest Income BV= Book Value Source: Company RHP | |||
| ISSUE DETAILS | |
| Price (Rs)* | 113-120 |
| Size (Rs crore) | 452-480 |
| Opened on | 13-Dec |
| Closes on | 16-Dec |
| CARE grading | 4/5 |
| *Excluding 5% discount to retail investors | |
PSB is now looking to broaden its product base and service offerings and will roll out internet banking, mobile banking, new ATMs and loan syndication services, besides opening specialised branches for high net worth individuals. It is also aiming to increase the share of the low-cost CASA deposits from 25 per cent of the total deposits currently, besides it’s fee-based business. Implementation of information technology (like core banking solution from 20 branches to 500) across its branch network in the next one-two years should lead to better efficiency and lower costs. All these measures should augment growth and profitability going forward.
Few concerns
PSB has substantial exposure to priority sector lending (like agriculture), which forms 31.57 per cent of its adjusted net bank credit. Also, around half its total retail loans are via housing finance loans and advances to real estate developers (exposure of about 15 per cent of total loans), thereby exposing it to the cyclicality in the real estate sector.
Meanwhile, the bank has not made any provision for second pension liability, which could be between Rs 600 and Rs 700 crore and has potential to impact profitability. Analysts though believe that RBI would provide banks to amortise it over a longer period, thereby minimising the impact. While PSB’s net interest margin (NIM) and net profit margin have consistently fallen in the last two-three years to 2.67 per cent and 12.5 per cent, respectively for 2009-10, these could get some support from the bank’s focus on increasing low-cost CASA deposit share.
Valuations
High asset quality and robust growth are among key strengths of PSB. While near-term margins are likely to come under pressure due to rising deposit costs, the bank should manage a 15 per cent growth in profits in 2010-11. Based on 2010-11 estimated earnings, the PE works out 4.2-4.5 times (on price band of Rs 113-120). While this is slightly lower than the average P/E of its peers at five times, the 5 per cent discount to retail investors make valuation more attractive. PSB's valuation based on price/book value is also better than its peers. Good operational metrics and cheap valuations make the IPO attractive. Subscribe