Buy Punjab National Bank; target of Rs 86: Sharekhan

Sharekhan's research report on Punjab National Bank

Asset quality trend is quite encouraging and will help in faster normalization of credit cost for the bank in FY25E. Recoveries have already started to outpace slippages in the last 2 consecutive quarters. Provisions are largely related to back book (Net NPL 1.98% & Restructured book 1.2%) which would be accounted for in 9MFY24. We expect credit cost to fall significantly as net NPAs decline steadily in FY24 to ~ 1% along with opex cost to fall substantially led by lower pension-related provisions as bond yields stabilise that should boost the return ratios in FY25E. Stock currently trades at 0.8x/0.7x its FY2024E/25E ABV.

Outlook

Strong asset quality to boost RoA closer to ~1% in FY25E, which is driving strong outperformance. We reiterate a Buy on PNB with a revised PT of Rs. 86.

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