Punjab National Bank’s Q1 Performance: Significant Profit Surge and Improved Asset Quality
News Mania Desk/Agnibeena Ghosh/29th July 2024
Punjab National Bank (PNB) has reported a remarkable performance for Q1, showing a 159% year-on-year increase in profit, driven by a significant reduction in provisions and strong recoveries. The gross non-performing assets (NPAs) ratio saw a substantial drop, prompting the public sector bank to revise its FY25 gross NPA guidance down to 4% from the previous 5%.
PNB also revised its credit cost guidance for the current year, reducing it to 0.5% from 1% previously. Analysts have responded positively to the Q1 results and the updated guidance, although they remain cautious about the bank’s return ratios, which are currently limiting any stock rating upgrades.
The bank is optimistic about reversing credit costs, supported by higher recoveries and fewer new slippages. Additionally, PNB has decreased the amount of capital it plans to raise in FY25 to Rs 5,000 crore from the earlier Rs 7,500 crore. The net interest margin (NIM) guidance for FY25 is maintained at 2.9-3.0%.
Motilal Oswal Financial Services Limited (MOFSL) noted that PNB’s results were marked by a sharp reduction in provisions. The net interest income (NII) was largely in line with expectations, although NIM saw a slight contraction.
“Pre-provision operating profit (PPoP) experienced a minor miss due to higher operating expenses in Q1 related to priority sector lending certificates (PSLC) costs. The growth in advances was robust, with management aiming to increase its share in the RAM (Retail, Agriculture, and MSME) portfolio, which will support margins. Asset quality showed significant improvement as recoveries and write-offs remained at high levels. The provision coverage ratio (PCR) improved further to 88%, while asset quality ratios also saw enhancements,” MOFSL stated.
MOFSL has increased its earnings estimates for PNB by 5.6% for FY25 and 0.8% for FY26, taking into account lower provisions, healthy NII, and steady margins. The brokerage has suggested a ‘Neutral’ rating with a revised target price (TP) of INR135, up from INR130, based on 1.1x FY26 estimated book value (BV).
Nirmal Bang Institutional Equities values PNB at 1.1 times its adjusted book value (ABV) for June 2026, raising the target price to Rs 124 from Rs 120. This valuation represents a 78% premium over the past five-year average multiple of 0.62 times. This premium reflects an expected earnings compound annual growth rate (CAGR) of 40.5% over FY24-FY26, driven by a loan CAGR of 12.1%, stable margins, and improving operating expenses ratios and credit costs.
“Despite the return ratios remaining lower, even with an increase in recoveries, we maintain an ‘Accumulate’ rating on PNB,” Nirmal Bang commented.
In summary, PNB’s impressive Q1 performance, marked by a substantial profit increase and improved asset quality, has garnered positive feedback from analysts. However, the bank’s return ratios continue to be a concern, tempering the overall enthusiasm and affecting stock rating upgrades. As PNB focuses on enhancing its RAM portfolio and maintaining strong recoveries, its future performance will be closely watched by investors and market analysts.
