• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Suresh Krishnamurthy

FRESH investments can be considered in the stock of PNB Gilts, which trades at about Rs 23, at a discount of nearly 35 per cent to its book value per share of about Rs 35. The stock also offers a dividend yield of above 11 per cent.

Given that the payout is about 40 per cent, the dividend is maintainable even if there is a decline in the return on assets. In this context, investment in this stock at this price holds potential to deliver returns.

PNB Gilts is one of the primary dealers in the country. The company operates both in the primary and secondary markets for government and corporate securities. PNB Gilts' financial performance bears a strong correlation to the movements in yields of government securities (gilts).

With gilt prices falling in the quarter ended March 2003, the earnings of PNB Gilts was also affected.

In fact, with the entire portfolio of investments (of about Rs 1,171 crore) marked to market, the fall in prices affected the performance for the year ended March 2003 as a whole. Profits declined by 18 per cent.

However, since then, the prices of government securities have only risen. In addition, while there may be no upside left for government securities in the short term, equally, the outlook is only for a minimal downside.

In this context, PNB Gilts' financial performance appears poised to receive a fillip in the first two quarters of the financial year 2003-04. The scope for improvement in profits exists over a longer period too.

The rate of borrowings by the Government of India is increasing each year at a fast clip. Investment interest and trading turnover in gilts is also on the rise. In addition, trading in corporate debt securities is also picking up. The introduction of interest rate futures is also likely to pep up trading interest.

While competition is intense, the scope for an established player such as PNB Gilts to reap the benefits of the emerging opportunities appears strong.

In terms of valuation, the stock does appear under-valued. In the last few years, the return on net worth of PNB Gilts has ranged between 17 and 38 per cent.

On an average, it has been above 25 per cent. It was about 17 per cent for the year ended March 2003.

Given that potential for growth exists, the scope for a sharp decline in the return on net worth appears minimal. In this context, a market price that is at a discount to its book value, represents an opportunity to accumulate the stock.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Titanor Components

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line