PNB shares are up 61 per cent in the past six months. Nirmal Bang Institutional Equities and Kotak Institutional Equities maintained ‘Sell’ rating on the stock, citing a recent sharp rally .
PNB’s Q4 results was a mixed bag as the profit beat was driven by a sharp decline in provisions. PPoP missed estimates due to higher opex, said Motilal Oswal Securities.
A 160 per cent year-on-year (YoY) jump in profit reported by Punjab National Bank (PNB) failed to impress a few brokerages including Nirmal Bang Institutional Equities and Kotak Institutional Equities, as they maintained ‘Sell’ ratings on the stock, citing a recent sharp rally. PNB’s Q4 profit was largely led by lower provisions, with its pre-provision operating profit (PPoP) missing analyst estimates.
Kotak said PNB has been faring better on incremental asset quality than a few peer banks and that lower provisions have kept improving its return ratios. But “Given the sharp rally in the stock price recently, we retain SELL, with an fair value of Rs 105, valuing the bank at 1 time book value per share.
After incorporating March quarter results and assuming further asset quality improvement due to continued recoveries from gross non-performing assets and written off accounts, Nirmal Bang marginally upped its PNB earnings estimate for FY26 by 3.5 per cent.
But despite these upward revisions, return on asset (RoA) and return on equity (RoE) would still remain lower at 0.8 per cent and 12 per cent for FY26, respectively, it said. This brokerage values the PNB stock at Rs 110, which reflects a downside of 10 per cent. “Considering the recent rally in the PNB stock price and lower return ratios, we maintain our ‘SELL’ rating,” it said.
Antique Stock Broking said given that the PNB stock trades at a similar valuation to its other PSU bank peers, whereby it lags in return ratios and capitalisation, there isn’t much scope for valuation re-rating.
PNB’s Q4 results was a mixed bag, as the profit beat was driven by a sharp decline in provisions. PPoP missed estimates due to higher opex, said Motilal Oswal Securities.
“Q4 witnessed relatively slower growth, but management aims to improve its share in the RAM portfolio, which will support We raise our EPS estimates by 7 per cent/5 per cent for FY25/FY26, factoring in lower provisions, healthy other income, and steady margins. Reiterate Neutral with a revised target of Rs 130,” it said.
Return ratios for the bank have been depressed (55 bps RoA in FY2024) owing to elevated credit provisions. While recoveries from bad loans are on a declining trend, credit cost is likely to decline sharply in FY2025E because PCR has improved to a healthy level of 88 per cent and the trend on fresh slippages is quite encouraging, Kotak said.
“Non-interest income for PNB has been weaker than peers, resulting in lower expectations of return ratios compared with peers. We wait to see how the bank progresses on this journey of improving operating profitability,” Kotak said.
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