PNB Shares Jump 6% As Net Profit Rises 327% In Q2; Should You Buy, Sell Or Hold?

PNB Share Price: Punjab National Bank (PNB) shares moved in an upward trajectory on October 27 morning after the state-owned lender delivered a strong set of numbers for the July-September quarter.

The public sector bank posted 327 per cent YoY jump in profit that bear Street estimates by 51 per cent. The PSU Bank reported a 20 per cent jump in net interest income (NII), which beat the consensus estimate by 4 per cent. Besides, the bank suggested an expansion in net interest margin (NIM) against an estimate of contraction.

Atul Kumar Goel, Managing Director (MD) and Chief Executive Officer (CEO), PNB told news agency PTI that the credit cost will reduce in the coming quarters and profitability of the bank will increase. The net interest income, net profit, and operating profit are highest in the past 14 quarters, he said.

“RAM (Retail, agri and MSME sectors) will be the focus areas of PNB. In the first half of current fiscal (Apri-September), we achieved a profitabiity of over ₹3,000 crore. “I am hopeful that we will be able to maintain the same profitability in the third and fourth quarters,” Goel told reporters.

PNB said its profit for the September quarter came in at Rs 1,756 crore compared with Rs 411.27 crore in the same quarter last year. NII, the difference between the interest earned from lending activities and the interest paid, rose to Rs 9,923 crore, while gross NPA ratio eased to 6.96 per cent against 10.48 per cent YoY.

Global brokerage firm CLSA shared an “outperform” rating on the stock and raised the target price to Rs 80 a share.

“The company delivered 0.4 percent return-on-asset (RoA) in the first half of FY24 and we expect them to maintain this in H2FY24 as well. We upgrade pre-provision operating profit estimate by 4-9 percent for FY24/25,” analysts wrote in a post-result review note.

The lender’s gross non-performing assets (GNPAs) improved by a whopping 352 basis points (bps) on-year to 6.9 per cent, whereas net NPA declined by 232 bps on-year to 1.4 per cent.

One basis point is one-hundredth of a percentage point.

“We anticipate normalised RoA for PNB to remain below 1 per cent, while all others have reached or crossed 1 per cent. We revise PAT by 24 per cent/14 per cent for FY24/FY25. We increase target price to Rs 50 (0.7 times BV) from Rs 45 (0.7 times BV) on improving asset quality but maintain ‘Reduce’ as PNB’s profitability shall remain weaker than other state banks,” said Nuvama Institutional Equities.

Motilal Oswal Securities said PNB’s Q2 results were steady as lower-than-expected provisions drove earnings while asset quality continued to demonstrate a sharp improvement.

“NII growth was healthy sequentially supported by steady margins and healthy growth in RAM segments. Asset quality continued to improve, aided by lower slippages and healthy recoveries, while PCR improved further to 80 per cent. SMA overdue remains under control at 0.16 per cent of domestic loans, while the bank continues to guide for robust recoveries,” Motilal Oswal Securities said,

The domestic brokerage said it has maintained its target of Rs 75 and projected return on asset (RoA) of 0.6 per cent and return on equity (RoE) of 9 per cent by FY25.

Return ratios for the bank have been depressed on account of elevated provisions and, more recently, higher retirement-related costs, said Kotak Institutional Eqties.

“As fresh slippages and outstanding net NPLs both decline steadily, the requirement for provisions is likely to decline steadily. Further, we expect cost ratios to improve as retirement-related provisions decline. We are getting closer to a point where PNB is likely to see sharp improvement in return ratios,” Kotak said while suggesting a fair value of Rs 82 on the stock.