Sharekhan's research report on Punjab National Bank
We believe valuations are cheap for PNB as compared to return ratio profile expected, as Bank is likely to deliver strong earnings growth and higher RoA/RoE led by healthy loan growth, margin improvement & lower credit cost (RoA from 0.3% in FY22 to 0.4%/0.7% /0.8% inFY23E/24E/25E). Lower slippages trend are expected in near to medium term because of improvement in corporate credit cycle. Moreover, trailing loan growth in corporate segment has been muted. Thus, NPA formation should moderate further. A combination of the above factors, along with improving loan growth trajectory and higher coverage on bad loans, should bode well for good compounding in earnings going ahead. The stock currently trades at 0.7x/0.6x/0.5x its FY2023E/24E/25E ABV.
Outlook
We upgrade PNB to buy from hold rating with a revised TP of Rs.64. We expect RoAs (return on assets) of 0.7% for FY24E and 0.8% for FY25E, driving RoE (return on equity) of 10% and 12% for the respective years going ahead.
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