Punjab National Bank (PNB)'s beat on December quarter results was led by lower-than-expected provisions. Steady margin and healthy growth in RAM (retail, agriculture and MSME) segments boosted net interest income (NII) growth for the PSU lender. Asset quality improved on lower slippages and healthy recoveries, analysts said.
Despite the earnings beat, Motilal Oswal Securities suggested a target of Rs 100 on PNB, which hinted at a 4 per cent potential downside from the prevailing levels. The multibagger stock is up 7 per cent in January and 106 per cent in the last one year.
"We increase earnings sharply as we slash credit cost to 0.9 per cent from 1.2 per cent in FY25E. PNB’s RoA remains below 1 per cent in FY25E while peers have already reported 1 per cent RoA. Despite lower RoA, PNB is trading at 1.3 times book value FY25E at a premium to peers that trade at 1 time. Retain ‘REDUCE’ on rich valuation," said Nuvama Institutional Equities.
Nuvama suggested a target of Rs 105 on the counter. The PNB stock closed at Rs 104.61 on Thursday.
For the quarter, PNB reported 253 per cent surge in consolidated net profit at Rs 2,222.80 crore in the against Rs 628.88 crore YoY. NII jumped 12.13 per cent YoY to Rs 10,293 crore. Return on Assets (RoA) improved YoY 41 basis points to 0.58 per cent.
Motilal Oswal Securities said the loan book grew by a healthy 15 per cent YoY amid healthy traction in Corporate, Agri and MSME. Deposits grew at a slower pace of 9 per cent YoY, led by 6 per cent YoY growth in CASA and faster growth in international deposits at 18 per cent YoY.
The domestic brokerage noted that the C/D ratio was relatively low at 69 per cent, giving levers to accelerate advances unlike other banks. Slippages dipped to Rs 1800 crore (0.9 per cent annualized) enabling sharp a 72 basis points decline in gross NPA ratio at 6.24 per cent.
"SMA overdue (with loans over INR50m) remains under control at 0.14 per cent of domestic loans, while the bank continues to guide for robust recoveries at 2 times of slippages. PNB expects the credit cost to be contained at less than 1 per cent and expects RoA at 1 per cent by 4QFY25. We upgrade our EPS estimates by 15 per cent/5 per cent for FY24/FY25, factoring in lower LLP and healthy margins. We estimate RoA/RoE of 0.7 per cent/11 per cent in FY25 and 0.9 per cent/13.1 per cent by FY26," it said.
For the quarter, the bank made AS-15 provisions of Rs 322 crore and extra provisions of Rs 800 crore for a 17 per cent wage hike settlement. PNB has been making provisions for pensions and has increased liability provisions. In 2Q, the bank made provisions of Rs 690 crore for the wage revision.
“While earnings in Q3FY24 were the strongest in the sector and shall lead to upgrades, RoA shall stay below 1% in FY25E. For other state banks, RoA is already at 1 per cent. Post the sharp run-up, retain ‘REDUCE’. CET 1 is low at 9.9 per cent and PNB has board approval to raise Rs 7,500 crore in FY25E,” Nuvama said.
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