Foreign brokerage JPMorgan has upgraded Punjab National Bank (PNB) to Overweight, increasing its target to Rs 72 from 34 earlier. The price target suggests a 28 per cent potential upside ahead for the PSU bank stock.
JPMorgan said it upgraded PNB from a long standing Underweight to an OW after the company’s September quarter disclosures show that net slippages have got into negative territory and recovery momentum outpaced new non-performing loan (NPL) creation. Besides, there is minimal stress in corporate loans (SMA-2 at 0.1 per cent).
Provisions, JPMorgan said, are largely related to back book (net NPL 3.8 per cent, restructured 1.7 per cent), which are higher than SBI and Bank o Baroda's and the market will likely look through it via a one-time book value adjustment.
"Capital and liquidity is reasonably comfortable with CET-1 at 10.9 per cent and LCR at 160 per cent in an environment of tighter deposits at private banks. The stock has seen a re-rating led outperformance recently (up 44 per cent in 3 months against the Nifty Bank's 8 per cent rise) and we believe that, with limited new stress formation and system growth outlook improving, this trend could continue in the near term," JPMorgan said.
JPMoragn said that while PNB’s operating profit metrics are comparable to other PSU banks, return on assets (ROAs) are materially lower due to higher provisions. This gap could start to narrow as provisions start reducing, it said.
The bank however continues to lose market share in both credit and deposits, unlike SBI and Bank of Baroda (BOB) and, hence, a discount to them will be a fair, JPMorgan said.
The bank is currently trading at 0.6 times F24E price to book value (PBV) against long cycle average of 0.9 times PBV.
"We estimate earnings to remain under pressure in F23/24 as the company catches up on back book provisioning. This keeps our F24 estimate broadly unchanged. However, with limited new stress formation and system growth itself picking up, we see further scope of re-rating at PNB. Our revised Mar-24 PT of Rs 72 is based on c.0.7 times one-year forward PBV, at a 20 per cent discount to its long cycle average and a 15 oer cent discount to BOB," ity said.
On Monday, the scrip was trading at Rs 56.50, up 0.44 per cent.
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