Brokers' views on Punjab & Sind Bank IPO

Punjab & Sind Bank`s initial public offering (IPO) of 40 million equity shares has opened for subscription today. The issue constitutes 17.93% of post-issue paid-up capital of the bank, at a price band of Rs 113-120 a share. The issue will close on December 15 for qualified institutional investors (QIB) and on December 16 for other investors.



We at Myiris.com have collated views of brokers on how they view the initial public offering of Punjab & Sind Bank. The same are as under:

Edelweiss: Subscribe

Compared to other regional PSU banks, PSB has strong operating/profitability metrics in terms of RoA (~1.1%), ROE (~30%) and PAT/employee. Concerns remain on bank`s ability to: (a) sustain NIMs at current levels (3%+) in rising interest rate scenario, and (b) manage asset quality as the bank shifts to CBS-based NPL recognition. We expect bank to grow its loan book at 1.4x the system growth and deliver ROA of ~1% and ROE of ~24% over FY11-12. At the upper band of Rs 120, dilution will be book value neutral; the stock is available 1.06x H1FY11E adj. book (~30% discount to peers). We find valuations attractive and recommend `Subscribe`.

Angel Broking: Subscribe

The bank`s low CASA ratio is expected to lead to NIM pressures in the current rising rate environment. Considering the recent hikes in FD rates by many banks and the resultant sharp correction in stock prices, especially of low CASA banks, the timing of the issue seems somewhat inopportune. However, we believe the issue`s attractive pricing factors in the expected NIM pressures, when compared to relative valuations of peers with similar low CASA ratio. The bank`s peers are trading between 0.9x and 1.1x FY2012E ABV; while at the upper end of the price band (`120), the bank will trade at 0.8x FY2012E ABV. Valuing the bank at 1.0x FY2012E ABV would imply 21% upside from the upper end of the price band. Hence, we recommend a Subscribe to the issue on account of the relatively cheap valuations.

MLR Securities: Subscribe

The bank`s market cap is coming to around Rs 25.2 billion and Rs 26.76 billion on an lower and upper price band of Rs 113-120 making it smallest nationalized bank in terms of market capitalization. The bank is asking for a post issue price earnings multiple of 5.5 times its FY10 earnings which is the cheapest while the industry average is around 7.5. The post issue book value as on 1HFY11 comes to Rs 128 the P/BV comes to 0.93 on Rs 120. On annualized earnings of Rs 25 for FY11 valuing it 6.5 times the fair value comes to Rs 162 an upside of 35% from the upper price band of Rs 120. We recommend investors to Subscribe the issue considering its attractive pricing of the issue for medium to long term time frame.

IIFL: Subscribe

With CAR at 13%, PSB is well poised for a brisk balance sheet growth. Further, tie-ups with Aviva (for life insurance), Bajaj Allianz (for general insurance) and UTI MF (distribution of mutual fund product) should shore up its fee based income. While uncertainties over fresh pension liability remains; strong GoI parentage, dominant presence in North India, particularly in Punjab, and healthy returns ratio are the key positives. We recommend investors to Subscribe the issue.

Hem Securities: Subscribe

Punjab & Sind Bank is bringing the issue at price band of Rs 112-120 at p/e multiple of 4.56-4.84 on post issue EPS of Rs 24.78 (Basis Annualized PAT for H1FY’11).

The bank has shown strong performance in its financials. Also, bank outperformed its group average of the public sector banks as well as all banks’ average for fiscal 2010 on several financial and risk management parameters like return on advances as adjusted to cost of funds, (ii) return on assets, (iii) net NPA ratio and (iv) business per employee, despite currently being much smaller in size than many of the public sector and other banks with which it compete. Therefore, looking at the valuations and all above, we find issue a very attractive destination to deploy the funds. Hence we recommend investor to `Subscribe` the issue.

Way2Wealth: Neutral

The shares of Punjab & Sind Bank are priced at price to book value of 0.79x & 0.75x on the lower & upper band of the issue price of its FY12E book value. The bank has shown robust growth in its business with deposits growing at a CAGR of 41.3% between FY07 - FY10 & advances growing at a CAGR of 40.7% during the same period. However, this has not been converted to profits as the robust growth in business was led by bulk deposits & bulk advances. The bulk advances was led by corporate portfolio, the share of which increased from 50.6% in FY08 to 56.6% in H1FY11. This led to reduction in net interest margin (NIM) since at that time corporates commanded interest rates way below the BPLR of the banking industry. GoI will continue to hold 82% post the issue, which will aid in raising capital in the future. Asset quality is one of the best seen in the industry. The shares are currently priced at lower than many other peers. Hence we recommend `Neutral` to the issue.

SP Tulsian (Independent Analyst): Subscribe

At the upper price band of Rs. 120, fresh issue is being made at book value, which stood at Rs. 119.20 as of 30-09-10. Considering expected EPS of around Rs. 30 for FY11, the PE multiple works out to 4 times, again very attractive.

A comparison with similar sized PSU banks shows that the issue is attractively placed both with respect to PE and PBV multiple.

Empirical data suggests that PSU banks have rewarded, in the long-term. United Bank of India had made its IPO in February 2010 at Rs. 66 per share (at PE multiple of less than 4x and PBV multiple of 0.7x). Currently United Bank is trading at 106. Bank of Maharashtra had also made its IPO at similar PE and PBV multiples in February 2004, at Rs. 23 per share, which is now close to Rs. 63. Although the PE multiples have increased in case of this IPO, the prospects seem bright.

Considering the attractive pricing, the issue is recommended for subscription even at upper band.

Mansukh:Subscribe

Punjab & Sind Bank is slightly smaller than the smallest listed public sector bank (PSB), State Bank of Mysore. But when it comes to net profit, Punjab & Sind fares better than State Bank of Mysore, and in 2010, had overtaken somewhat bigger banks by total income like United Bank, Bank of Maharashtra and State Bank of Bikaner. Further, the bank`s capital adequacy ratio stood at 11.67%as per Basel I and at 13.02% as per Basel II norms. When many banks are finding it difficult to meet the RBIstipulated 70% provisioning coverage ratio (PCR), Punjab & Sind is very comfortable with its over 83% PCR.As far as its future plans are cponcerned, the bank also plans to open 100 branches this fiscal out of which only 10 have been opened till now. By March 2011, the bank plans to open remaining 90 more branches in Tier II to Tier VI cities. The offer has been fairly priced and appears good for those investors who are looking for long-term value hence investors are advice to subscribe the issue.

via Myiris