Shares of Punjab National Bank Ltd (PNB) climbed over 3 per cent in Friday's trade after the public sector bank posted 327 per cent YoY jump in profit that bear Street estimates by 51 per cent. The PSU Bank reported a 20 per cent jump in net interest income (NII), which beat the consensus estimate by 4 per cent. Besides, the bank suggested an expansion in net interest margin (NIM) against an estimate of contraction.
Analysts are, however, mixed on the stock after a 66 per cent rally in the last one year and lower return ratios.
The stock climbed 3.03 per cent to hit a high of Rs 71.93 on BSE. PNB said its profit for the September quarter came in at Rs 1,756 crore compared with Rs 411.27 crore in the same quarter last year. NII, the difference between the interest earned from lending activities and the interest paid, rose to Rs 9,923 crore, while gross NPA ratio eased to 6.96 per cent against 10.48 per cent YoY.
"We anticipate normalised RoA for PNB to remain below 1 per cent, while all others have reached or crossed 1 per cent. We revise PAT by 24 per cent/14 per cent for FY24/FY25. We increase target price to Rs 50 (0.7 times BV) from Rs 45 (0.7 times BV) on improving asset quality but maintain ‘Reduce’ as PNB’s profitability shall remain weaker than other state banks," said Nuvama Institutional Equities.
Motilal Oswal Securities said PNB's Q2 results were steady as lower-than-expected provisions drove earnings while asset quality continued to demonstrate a sharp improvement.
"NII growth was healthy sequentially supported by steady margins and healthy growth in RAM segments. Asset quality continued to improve, aided by lower slippages and healthy recoveries, while PCR improved further to 80 per cent. SMA overdue remains under control at 0.16 per cent of domestic loans, while the bank continues to guide for robust recoveries," Motilal Oswal Securities said,
The domestic brokerage said it has maintained its target of Rs 75 and projected return on asset (RoA) of 0.6 per cent and return on equity (RoE) of 9 per cent by FY25.
Return ratios for the bank have been depressed on account of elevated provisions and, more recently, higher retirement-related costs, said Kotak Institutional Eqties.
"As fresh slippages and outstanding net NPLs both decline steadily, the requirement for provisions is likely to decline steadily. Further, we expect cost ratios to improve as retirement-related provisions decline. We are getting closer to a point where PNB is likely to see sharp improvement in return ratios," Kotak said while suggesting a fair value of Rs 82 on the stock.
Nirmal Bang Institutional Equities has rolled forward its valuation to September 2025 adjusted book value of Rs 98.30. It valued the stock at 0.75 time.
"We thus derive our target price of Rs 78 from Rs 71 earlier, which reflects an upside of 12 per cent. Considering the recent rally in the stock price of PNB and lower return ratios, we maintain accumulate," it said.
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