Buy Punjab National Bank; target of Rs 72: Sharekhan

Sharekhan's research report on Punjab National Bank

PNB reported a PAT of Rs. 1,255 crore up 307% y-o-y/ 8% q-o-q below estimates led by higher-than-expected opex due to higher employee pension costs (~Rs. 1,200 crore) and higher credit cost partly offset by higher fee and other income. On the positive side, asset quality improved sharply with GNPA and NNPA ratios falling by 101 bps/74 bps q-o-q to 7.73%/1.98%. PCR stood at ~76% vs. 71% q-o-q. Net slippages stayed negative at Rs. 1,205 as the trajectory seen in FY23. Overall, asset quality outlook continues to remain stable to positive with strong recoveries expected (~ Rs. 22,000 crore) in FY24. Core credit cost stood at 2.1% annualised (Cal. as a % of 12m trailing loans) vs 1.8% q-o-q. However, the provisions were largely related to back book (Net NPAs & restructured book). The bank maintained its guidance on credit cost for FY24 at ~1.5-1.75% of average advances.

Outlook

We expect opex costs to fall substantially led by lower pension-related provisions as bond yields stabilise and credit cost to fall significantly as net NPAs declined steadily in FY24 to ~ 1% that should boost the return ratios in FY25. At CMP, the stock trades at 0.7x/ 0.6x FY24E/FY25E BV estimates. We maintain our Buy rating with a revised PT of Rs. 72.