Buy PNB, target of Rs 1,240: Motilal Oswal

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Motilal Oswal Financial Services has come out with a research report on Punjab National Bank (PNB). The research firm has maintained buy rating on the stock and raised target price to Rs 1,240 - an upside of 37%, in its report dated November 10, 2009.

"PNB's FY99-09 RoE average has been 22%, the highest among peer banks. RoA has improved from 0.8-0.9% in FY99-00 to 1.4% in FY09, driven by efficiencies and lower provisions. Considering PNB's superior and sustained margins and further efficiencies of scale, we expect RoA to sustain at 1.4% and RoE to sustain at 25%+ over the next couple of years. We expect EPS CAGR of 20% over FY09-11. The stock trades at 1.5x FY11E BV, at a discount to the theoretical fair value multiple of 2x, assuming 20% sustainable RoE. We see a re-rating to its fair BV multiple over the next couple of years, driven by increasing comfort on its resilient business model, balance sheet strength and consistent superior core operating performance. We value the stock at 2x FY11E BV and raise our target price to Rs 1,240 - an upside of 37%. Maintain Buy", says Motilal Oswal Financial Services.

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To read the full report click on the attachment.........