ValuePickr Forum

PNB Gilts an opportunity in queue..?

Dear All,
This is my post in the forum after being member of it for last 4 months. With limited knowledge I have tried to analyse this opportunity.
Company Name: PNB Gilts
Promoter: PNB
Type of business:Sale & management of:
Govt. Securities
Treasury Bills
NON SLR Investments
Money Market Instruments
Gilts Accounts
Mutual Funds

Shareholding Pattern: 74.07% Promoter, Institutional:1.12%, Individual: 24.81%.
CMP:26.65,Book Value: 41.25, Face Value:10
Financials taken from last few years:

One of the key thing that attracts me to this company is high profit margin over the last few years.I need feedback from the forum on business drivers, CMP < BV, risk & opportunities. I will be working on EVA and DCF to assess it further.

Declaration: I am not invested in this stock.

It is having a huge debt of 3857Cr as of Date.

I think there will be relief on that front with reduction in repo rate by RBI.

The performance is depending on the movement of interest rate.If the interest rate is hardening bond price will go down and vice versa.It is widely expected the yield will come down and it is beneficial to PNB Gilts.The co. is paying dividend every year ranges from 8 to 15%.For current year too the co. may declare atleast 15%.PNB Gilts is a primary dealer and it is holding Govt. and other securities.Hence there is no cause for concern towards debt as it is like deposit for the banks.
Considering limited scope for expanding the business, maximum marginal appreciation is possible in the share price.
Disc.Invested for term.

Sorry.A correction in my post.
Invested for short term.

Excellent quarterly numbers from this company… IMO a very gud company showing good growth. Interest rates are bound to come down which should be even better for this comapny… What say experts ?

With expected reduction in interest PNB Gilt may report very good numbers. As on March 31 2019, the company has investment of around Rs 8,817 Cr. Of Rs 8817 Cr investment book, nearly 6,588 Cr is G Sec (Central/State), Rs 1,580 Corporate Debt, Rs 648 Cr Certificate of Deposit and Rs 3 Cr of equity holding. This is compared to Rs 180 Cr equity as on March 31 2019.

Hence, the company is almot 50 times leveraged (Investment of Rs 8816 Cr/ Equity Rs 180 Cr) leverage. With decline G Sec from 7.37% as on March 2019 end to 6.88% as on June 2019 end. Depending on book and duration of holding, the company may report major spurt in profit during June 2019 quarter.

Further, in the scenario when interest rate are likely to remain low (and general economy not performing below average growth rate), this investment can work as hedge in portfilio in my opinion.

Last time, during June 2017 quarter, the 10 year G Sec yield declined by 47 basis point from 7.06% end of March 2017 to 6.59% end of June 2017. The company net proft, almost doubled from Rs 55 Cr in March 2017 quarter to Rs 112 Cr in June 2017. Please note that despite this jump in profit, share price of company declined from Rs 53 per share to Rs 49 per share. Hence, while the net profit and financial performance may increase due to decline in interest, since same is not considered sustainable market may not show immediate improvement in price.

Find enclosed Monthly, 10 Year G Sec rate and PNB Gilt monthly share price since 2000.

Year Month Gsec 10 Y PNB Gilt share Price Q Gsec Change
2000-01 Sep-00 11.81 10.50 0.70
2000-01 Oct-00 11.61 10.16
2000-01 Nov-00 11.40 9.75
2000-01 Dec-00 10.94 9.94 -0.87
2000-01 Jan-01 10.48 13.31
2000-01 Feb-01 10.04 15.08
2000-01 Mar-01 10.27 12.94 -0.66
2001-02 Apr-01 10.08 13.13
2001-02 May-01 9.71 12.41
2001-02 Jun-01 9.46 12.34 -0.82
2001-02 Jul-01 9.26 12.68
2001-02 Aug-01 9.14 13.13
2001-02 Sep-01 9.15 10.80 -0.31
2001-02 Oct-01 8.79 12.86
2001-02 Nov-01 7.92 13.54
2001-02 Dec-01 8.27 14.66 -0.88
2001-02 Jan-02 7.65 14.40
2001-02 Feb-02 7.47 13.50
2001-02 Mar-02 7.34 13.43 -0.92
2002-03 Apr-02 7.40 14.25
2002-03 May-02 7.65 16.28
2002-03 Jun-02 7.57 16.31 0.23
2002-03 Jul-02 7.37 13.50
2002-03 Aug-02 7.16 13.31
2002-03 Sep-02 7.20 13.65 -0.37
2002-03 Oct-02 6.98 14.40
2002-03 Nov-02 6.46 15.90
2002-03 Dec-02 6.08 18.11 -1.12
2002-03 Jan-03 6.34 17.10
2002-03 Feb-03 6.23 17.03
2002-03 Mar-03 6.19 16.01 0.11
2003-04 Apr-03 5.91 15.75
2003-04 May-03 5.85 17.06
2003-04 Jun-03 5.73 16.88 -0.46
2003-04 Jul-03 5.62 18.26
2003-04 Aug-03 5.26 22.20
2003-04 Sep-03 5.26 21.64 -0.47
2003-04 Oct-03 5.11 24.00
2003-04 Nov-03 5.14 22.43
2003-04 Dec-03 5.14 23.21 -0.12
2003-04 Jan-04 5.19 20.78
2003-04 Feb-04 5.27 18.49
2003-04 Mar-04 5.15 19.20 0.02
2004-05 Apr-04 5.15 20.06
2004-05 May-04 5.30 17.89
2004-05 Jun-04 5.87 17.70 0.71
2004-05 Jul-04 6.19 15.83
2004-05 Aug-04 6.15 14.40
2004-05 Sep-04 6.24 14.55 0.38
2004-05 Oct-04 6.87 13.20
2004-05 Nov-04 7.21 13.80
2004-05 Dec-04 6.59 16.73 0.35
2004-05 Jan-05 6.71 15.11
2004-05 Feb-05 6.49 15.41
2004-05 Mar-05 6.69 14.14 0.09
2005-06 Apr-05 7.19 13.20
2005-06 May-05 7.06 13.43
2005-06 Jun-05 6.88 13.28 0.20
2005-06 Jul-05 6.95 15.11
2005-06 Aug-05 7.19 17.18
2005-06 Sep-05 7.21 15.49 0.32
2005-06 Oct-05 7.08 14.40
2005-06 Nov-05 7.11 15.19
2005-06 Dec-05 7.12 14.89 -0.09
2005-06 Jan-06 7.31 16.84
2005-06 Feb-06 7.34 15.53
2005-06 Mar-06 7.53 14.66 0.41
2006-07 Apr-06 7.39 14.93
2006-07 May-06 7.68 13.91
2006-07 Jun-06 8.13 12.75 0.60
2006-07 Jul-06 8.28 11.66
2006-07 Aug-06 7.93 12.75
2006-07 Sep-06 7.68 14.18 -0.45
2006-07 Oct-06 7.64 15.41
2006-07 Nov-06 7.41 16.58
2006-07 Dec-06 7.61 15.00 -0.07
2006-07 Jan-07 7.77 15.60
2006-07 Feb-07 7.95 14.14
2006-07 Mar-07 7.94 13.61 0.33
2007-08 Apr-07 8.13 14.40
2007-08 May-07 8.12 14.89
2007-08 Jun-07 8.16 15.64 0.22
2007-08 Jul-07 7.91 14.63
2007-08 Aug-07 7.92 15.83
2007-08 Sep-07 7.92 21.75 -0.24
2007-08 Oct-07 7.87 18.41
2007-08 Nov-07 7.92 23.85
2007-08 Dec-07 7.81 33.94 -0.11
2007-08 Jan-08 7.57 25.99
2007-08 Feb-08 7.63 22.31
2007-08 Mar-08 7.64 20.70 -0.17
2008-09 Apr-08 8.02 22.01
2008-09 May-08 8.11 19.73
2008-09 Jun-08 8.65 14.85 1.02
2008-09 Jul-08 9.35 18.90
2008-09 Aug-08 8.71 20.14
2008-09 Sep-08 8.72 14.70 0.07
2008-09 Oct-08 7.48 13.28
2008-09 Nov-08 7.12 12.08
2008-09 Dec-08 5.30 15.71 -3.42
2008-09 Jan-09 6.00 15.56
2008-09 Feb-09 6.57 14.93
2008-09 Mar-09 7.04 13.95 1.74
2009-10 Apr-09 6.29 15.15
2009-10 May-09 6.75 19.09
2009-10 Jun-09 6.95 17.48 -0.09
2009-10 Jul-09 6.99 18.71
2009-10 Aug-09 7.50 18.15
2009-10 Sep-09 7.34 21.45 0.38
2009-10 Oct-09 7.59 21.64
2009-10 Nov-09 7.46 22.50
2009-10 Dec-09 7.74 23.03 0.40
2009-10 Jan-10 7.58 20.93
2009-10 Feb-10 7.86 19.61
2009-10 Mar-10 7.83 17.96 0.09
2010-11 Apr-10 7.78 20.85
2010-11 May-10 7.52 19.54
2010-11 Jun-10 7.58 19.28 -0.25
2010-11 Jul-10 7.83 18.45
2010-11 Aug-10 7.99 18.00
2010-11 Sep-10 7.90 30.34 0.32
2010-11 Oct-10 8.12 26.85
2010-11 Nov-10 8.05 23.18
2010-11 Dec-10 7.95 21.45 0.06
2010-11 Jan-11 8.15 17.81
2010-11 Feb-11 8.10 17.63
2010-11 Mar-11 8.02 17.78 0.07
2011-12 Apr-11 8.13 19.65
2011-12 May-11 8.41 19.35
2011-12 Jun-11 8.35 18.38 0.33
2011-12 Jul-11 8.48 19.13
2011-12 Aug-11 8.35 17.70
2011-12 Sep-11 8.40 17.93 0.05
2011-12 Oct-11 8.88 18.49
2011-12 Nov-11 8.76 17.78
2011-12 Dec-11 8.55 17.78 0.15
2011-12 Jan-12 8.29 18.49
2011-12 Feb-12 8.20 19.09
2011-12 Mar-12 8.56 19.05 0.01
2012-13 Apr-12 8.65 22.54
2012-13 May-12 8.46 18.34
2012-13 Jun-12 8.23 19.99 -0.33
2012-13 Jul-12 8.26 19.50
2012-13 Aug-12 8.31 18.79
2012-13 Sep-12 8.14 19.16 -0.09
2012-13 Oct-12 8.20 19.20
2012-13 Nov-12 8.20 20.21
2012-13 Dec-12 8.20 20.89 0.06
2012-13 Jan-13 7.94 20.78
2012-13 Feb-13 7.92 19.24
2012-13 Mar-13 8.01 18.56 -0.19
2013-14 Apr-13 7.79 19.65
2013-14 May-13 7.48 19.84
2013-14 Jun-13 7.46 17.96 -0.55
2013-14 Jul-13 8.27 18.45
2013-14 Aug-13 8.78 16.70
2013-14 Sep-13 8.76 16.00 1.30
2013-14 Oct-13 8.71 16.00
2013-14 Nov-13 8.72 16.05
2013-14 Dec-13 8.77 16.10 0.01
2013-14 Jan-14 8.87 16.10
2013-14 Feb-14 8.94 16.10
2013-14 Mar-14 8.88 17.00 0.11
2014-15 Apr-14 8.89 18.45
2014-15 May-14 8.69 21.00
2014-15 Jun-14 8.75 22.90 -0.12
2014-15 Jul-14 8.49 21.15
2014-15 Aug-14 8.63 21.40
2014-15 Sep-14 8.53 21.90 -0.23
2014-15 Oct-14 8.30 24.95
2014-15 Nov-14 8.12 28.60
2014-15 Dec-14 7.92 28.25 -0.61
2014-15 Jan-15 7.69 33.10
2014-15 Feb-15 7.77 33.00
2014-15 Mar-15 7.80 29.80 -0.12
2015-16 Apr-15 7.89 30.45
2015-16 May-15 7.64 30.40
2015-16 Jun-15 7.87 27.30 0.07
2015-16 Jul-15 7.81 30.15
2015-16 Aug-15 8.05 27.30
2015-16 Sep-15 7.53 26.65 -0.34
2015-16 Oct-15 7.92 25.95
2015-16 Nov-15 8.07 26.30
2015-16 Dec-15 8.09 26.60 0.56
2015-16 Jan-16 7.52 24.35
2015-16 Feb-16 7.64 23.55
2015-16 Mar-16 7.40 25.05 -0.69
2016-17 Apr-16 7.87 24.55
2016-17 May-16 7.47 23.05
2016-17 Jun-16 7.78 25.15 0.38
2016-17 Jul-16 7.41 26.10
2016-17 Aug-16 7.11 28.20
2016-17 Sep-16 6.81 25.45 -0.97
2016-17 Oct-16 6.82 38.25
2016-17 Nov-16 6.30 53.30
2016-17 Dec-16 7.17 45.75 0.36
2016-17 Jan-17 7.15 55.25
2016-17 Feb-17 7.09 54.35
2016-17 Mar-17 7.06 53.25 -0.12
2017-18 Apr-17 7.22 52.90
2017-18 May-17 6.51 47.25
2017-18 Jun-17 6.59 48.95 -0.47
2017-18 Jul-17 6.55 55.00
2017-18 Aug-17 6.54 55.30
2017-18 Sep-17 6.82 47.05 0.23
2017-18 Oct-17 7.03 51.85
2017-18 Nov-17 7.25 46.90
2017-18 Dec-17 7.52 47.30 0.70
2017-18 Jan-18 7.37 43.15
2017-18 Feb-18 7.70 36.80
2017-18 Mar-18 7.42 34.85 -0.10
2018-19 Apr-18 7.80 38.00
2018-19 May-18 7.93 32.90
2018-19 Jun-18 8.00 28.75 0.58
2018-19 Jul-18 7.74 27.70
2018-19 Aug-18 8.01 31.50
2018-19 Sep-18 8.01 26.50 0.02
2018-19 Oct-18 7.84 28.10
2018-19 Nov-18 7.69 30.00
2018-19 Dec-18 7.44 35.50 -0.58
2018-19 Jan-19 7.29 29.75
2018-19 Feb-19 7.45 29.80
2018-19 Mar-19 7.37 31.35 -0.07
2019-20 Apr-19 7.46 30.20
2019-20 May-19 7.13 33.55
2019-20 Jun-19 6.88 -0.49

image

The company has also declared dividend of Rs 1.4 per share with August 14 2019 being Ex dividend bank. At current price of Rs 36 per share, same translate 3.9% Dividend yield

Risk:
The expectation of high profit growth depend on many moving parts. Since the company has large borrowing, any derivative on that book (which I may not be aware) can completely change the picture.

Disclosure: I have nearly 1% allocation in my portfolio to this company which has been added during Last 15-20 days. My view may be biased due to my investment. Further, I am neither SEBI registered investment advisor and nor recommending anyone to invest in the company. The investor shall do his/her own due diligence before making any investment decision.

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I have exited from PNB Gilt and now invested same amount in Pressman Advertising due to comparable dividend yield (more sustainable) and no leverage.

The volatility in interest rate may affect PNB Gilt financial during the year and hence moved to Pressman advertising.

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PNB Gilts - a table-thumping, deep value Buy with high dividend yield

  1. PNB Gilts Ltd is India’s only listed, pure-play primary dealer (licensed activity by RBI) whose principal business is to hold and trade in Indian Govt securities
  2. It earns money through interest on g-secs and bonds and through profits made on trading in g-secs / bonds held by it
  3. It owns g-secs of roughly INR 10,000-11,000 cr out of its total investments of roughly 14,000 cr
  4. It has borrowings of roughly 12,000 cr (largely from RBI - LAF and REPO borrowings and some from banks including PNB)
  5. The current net worth of the co is roughly 1,500 cr and its m-cap is roughly 750 cr (0.50x Trailing Net Worth)
  6. The business is in a sweet spot and is benefiting on 2 accounts - reduction in interest rates (ie Repo rate - currently 4%) resulting in substantial and material reduction in borrowing costs and increase in g-sec prices resulting in substantial trading profit
  7. Management is professional and independent from PNB
  8. Borrowing franchise is solid; the co recently raised unsecured CPs at 3.45%
  9. Going forward, even if interest rates were to start rising again, PNB Gilts would be able to offset increase in borrowing cost (at Repo Rate) by increased interest income on g-secs (Bond yields are usually higher than the prevailing repo rate)
  10. In Q1FY21, the co earned 210 cr interest income and had borrowing costs of 103 cr. Over and above the co earned 280 cr trading profit (realised and unrealised), thus giving it a PAT of 285 cr for the quarter; to put this into perspective, for full year FY20 PAT was 186 cr
  11. Even assuming zero trading profit and rising interest rates (both highly unlikely), the co can easily return PAT of 70 cr per quarter only through net interest income after accounting for operating costs of 30-40 cr; Thus even at 280 cr PAT for the year, the co currently trades at a P/E of 2.5-3.0x
  12. Why buy now? From 2017-2019 the co’s net worth was stuck between 850 cr - 900 cr, which prevented it from borrowing more and hence investing in more g-secs; now that its net worth is 1,500 cr (and growing) a virtuous cycle of compounding and growth has begun - the co will be able to borrow more from RBI (at the Repo Rate) and from others and hence invest in more g-secs and other bonds and hence earn more interest (at at least the G-sec rate)
  13. The net worth (and hence cash flows) will therefore compound rapidly and sustainably and given the low risk nature of the business, the price would have to catch up with the net worth at some point
  14. The co is now also handsomely rewarding shareholders with higher dividend - Rs 3 dividend for FY20 which translated to a yield of 7.5% at CMP (9% yield on date of announcement)
  15. With the brilliant Q1 performance and therefore FY21, shareholders can hope for even more handsome rewards in years to come
  16. Risk - sudden and materially adverse movement in interest rates. Would like to stress on the words sudden and material because even in times of adversity, management has time and again demonstrated risk management, capital preservation and earnings capability
  17. Disclosure - invested. However, still buying
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