Buy Punjab National Bank; target of Rs 86: Sharekhan

Sharekhan's research report on Punjab National Bank

PNB reported PAT of Rs. 1,756 crore in Q2FY2024, which was significantly ahead of our expectations, led by lower credit cost and higher PPoP. Core credit cost stood at 1.4% vs 2.1% q-o-q. Core PPoP grew by 13% y-o-y/6% y-o-y, led by strong NII growth (~6% above estimates), driven by stable NIMs (+3 bps q-o-q) and contained opex growth. Advances grew by 3% q-o-q, led by continued acceleration in retail advances (+6% q-o-q). Deposit growth remained muted at 1% q-o-q. Asset quality improved sharply with GNPA and NNPA ratios falling by 77 bps/51 bps q-o-q to 6.96%/1.47% on the back of lower slippages (0.9% bps vs. 1.3% q-o-q annualised calculated as a percentage of 12M trailing loans) and higher recoveries and upgrades along with contained write-offs. PCR stood at ~80% vs. 76% q-o-q.

Outlook

The bank has guided for the exit RoA in FY2025E closer to ~1%, driven by strong asset quality and, in turn, lower credit cost as net NPAs are likely to decline steadily in FY2024E to below ~ 1%, which should boost return ratios. At the CMP, the stock trades at 0.8x/ 0.7x its FY2024E/FY2025E BV. We maintain our Buy rating with an unchanged PT of Rs. 86.