Punjab National Bank (PNB) reported a strong set of Q1 numbers, with profit growing 159 per cent year-on-year on a sharp fall in provisions and healthy recoveries. Gross non-performing assets (NPAs) ratio plunged sharply, with the PSU bank guiding for lower FY25 gross NPA guidance at 4 per cent against 5 per cent earlier.
PNB also cut its credit cost guidance to 0.5 per cent for the ongoing year from 1 per cent earlier. Analysts liked Q1 results and guidance but tepid return ratios are a concerns, hindering the stock rating upgrade.
PNB expects reversal from the credit cost, supported by higher recoveries and lower new slippages. The bank has also cut the quantum of capital to be raised during FY25 to Rs 5,000 crore from Rs 7,500 crore earlier. NIM guidance for FY25 is maintained at 2.9-3.0 per cent.
MOFSL said PNB's results were characterized by a sharp decline in provisions. NII broadly stood in line with expectations while NIM contracted marginally, it said.
"PPoP witnessed a slight miss amid higher opex in Q1 on account of PSLC costs. Advances growth was robust, and management aims to improve its share in the RAM portfolio, which will support margins. Asset quality continues to witness a sharp improvement as recoveries and w-off continued to stay at higher levels. PCR, thus, improved further to 88 per cent, while asset quality ratios also improved," MOFSL said.
This brokerage has upped its earnings estimates for PNB by 5.6 per cent for FY25 and 0.8 per cent for FY26, factoring in lower provisions, healthy NII, and steady margins. It suggested Neutral with a revised TP of INR135 (vs. INR130), based on 1.1x FY26E BV.
Nirmal Bang Institutional Equities values PNB at 1.1 times June 2026 adjusted book value (ABV) and suggested a target price of Rs 124 from Rs 120 earlier.
The valuation is at 78 per cent premium to the past 5-year average multiple of 0.62 times; this captures an earnings CAGR of 40.5 per cent over FY24- FY26E on the back of loan CAGR of 12.1 per cent, stable margins and improving opex ratios & credit costs, Nirmal Bang said.
"However, since the return ratios remain lower despite pick-up in recoveries, we maintain an ‘Accumulate’ rating on PNB, it said.