Sell Punjab National Bank; target of Rs 29: Emkay Global Financial

Emkay Global Financial is bearish on Punjab National Bank has recommended sell rating on the stock with a target price of Rs 29 in its research report dated August 24, 2020.

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August 25, 2020 / 19:50 IST

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Emkay Global Financial's report on Punjab National Bank

PNB declared merged Q1 financials (PNB+ Oriental+ United) with a PAT of Rs3bn, aided by high treasury gains and contained opex/provisions. Total Covid-19 provisions remain low at Rs10bn (16bps of loans), while PNB improved specific PCR by 180bps qoq to 65%. The GNPA ratio expanded 30bps qoq to 14.1% despite write-off and moderate slippages, due to a decline in the loan book by 6% qoq. For FY21, PNB has guided for slippages of Rs80-100bn, mainly from SMA-2 pool, and credit cost of 2-2.5%, which looks difficult to manage in the wake of elevated stress amid Covid-19. Nearly 29% of loans are under the moratorium as of June 30, however, PNB indicated that the moratorium rate has declined to 21% by July 31. The bank expects to restructure 5- 6% of loans, where retail loans could be given the moratorium on principal.

Outlook

We retain our Sell rating and UW in EAP, with a TP of Rs29 due to its traditionally weak asset quality and subdued return ratios. With CET 1 at a moderate level of 9.4%, we believe that PNB will have to raise capital soon as the onslaught on asset quality begins.

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