Buy Punjab National Bank; target of Rs 140: Sharekhan

Sharekhan's research report on Punjab National Bank

Earnings were marginally above estimates in Q4FY24 mainly led by lower provisions. Core credit cost stood at 0.85% annualised versus 1.3% q-o-q. However, core operating profits (below estimates) fell by 8% y-o-y/ 16% q-o-q led by higher staff costs driven by higher retiral benefit provisions under AS-15 and weak NII. Advances growth was also muted. Asset quality trends continued to improve and net slippages stayed negative for the fifth consecutive quarter in a row. Credit cost is expected to be below 1% of average advances in FY25 (vs c.1.4% in FY24) which should lead to improvement in RoA in FY25. Stock trades at 1.2x/ 1.0x its FY2025E/FY2026E ABV. We maintain Buy with an unchanged PT of Rs. 140.

Outlook

Maintain Buy on PNB with an unchanged PT of Rs. 140. Asset quality trends are quite encouraging and outlook continues to remain strong. The bank has been guiding that quality of loans sanctioned in post-COVID times is far superior with very low delinquency. Thus, lower slippages trends is likely to sustain and narrow the perceived gap in underwriting with respect to peers. Credit cost is expected to fall below 1% in FY25E, which should support RoA closer to 1% in FY25E. Additionally, improvement in operating performance led by fee income and opex is expected to support earnings. At CMP, the stock trades at 1.2x/ 1.0x its FY2025E/FY2026E BV.