PNB Q4 profit: Despite Punjab National Bank (PNB) reporting a 160 percent year-on-year (YoY) increase in profit, some brokerages, such as Nirmal Bang Institutional Equities and Kotak Institutional Equities, remained unimpressed and maintained ‘Sell’ ratings on the stock. They pointed to a recent significant surge in the stock price. PNB’s fourth-quarter profit was primarily driven by reduced provisions, although its pre-provision operating profit (PPoP) fell short of analyst expectations.
Kotak highlighted that Punjab National Bank (PNB) has exhibited superior incremental asset quality compared to some of its peer banks, and the continual reduction in provisions has contributed to enhancing its return ratios. However, they emphasized that despite these positive aspects, given the recent substantial surge in the stock price, they maintain their ‘SELL’ recommendation, valuing the bank at 1 time book value per share, with a fair value of Rs 105.
On the other hand, Nirmal Bang slightly adjusted its earnings estimate for PNB for FY26 by 3.5 percent, incorporating the March quarter results and anticipating further enhancement in asset quality from ongoing recoveries in gross non-performing assets and written off accounts. However, even with these adjustments, they anticipate that the return on asset (RoA) and return on equity (RoE) would still be modest at 0.8 percent and 12 percent, respectively, for FY26. Consequently, they have pegged the value of PNB stock at Rs 110, reflecting a downside potential of 10 percent. Given the recent surge in PNB’s stock price and the comparatively lower return ratios, they have decided to maintain their ‘SELL’ rating.
Antique Stock Broking noted that Punjab National Bank (PNB) trades at a comparable valuation to its fellow PSU bank peers, despite lagging behind in return ratios and capitalization, suggesting limited potential for a valuation re-rating.
Motilal Oswal Securities characterized PNB’s Q4 results as a mixed bag, with the profit surpassing expectations primarily due to a significant decrease in provisions. However, they noted that pre-provision operating profit (PPoP) fell short of estimates, attributed to higher operating expenses.
Despite witnessing relatively subdued growth in Q4, PNB’s management aims to enhance its share in the Retail, Agri & MSME (RAM) portfolio, which is expected to provide support. Motilal Oswal Securities revised their EPS estimates upward by 7 percent for FY25 and 5 percent for FY26, considering reduced provisions, robust other income, and stable margins. They reiterated a Neutral stance with a revised target of Rs 130.
Kotak noted that the bank’s return ratios have been subdued, with a 55 basis points Return on Assets (RoA) in FY2024, primarily due to high credit provisions. While recoveries from non-performing loans are decreasing, it’s anticipated that credit costs will significantly decrease in FY2025E. This optimism is driven by the improvement in the Provision Coverage Ratio (PCR) to a robust 88 percent and a positive trend in fresh slippages.
Kotak commented that Punjab National Bank (PNB) has experienced weaker non-interest income compared to its peers, leading to reduced expectations for return ratios in comparison. They are keen to observe the bank’s progress in enhancing its operating profitability. -PNB Q4 profit
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