Punjab National Bank stock gained 53% in CY23; should you buy?

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Punjab National Bank has seen its shares perform exceptionally well this year so far, rewarding its shareholders with a return of 53%. During this period, the stock has appreciated from 56.80 apiece to the current level of 86.40.

This marks the stock’s third consecutive yearly return. In CY21, it gained 12.86%, and in the following year, it rallied another 51.34%. Currently, the stock is ranked as the top gainer in the Nifty Bank index, with a yearly return of 55.4%.

Also Read: Nifty Bank hits new record high as market surges sharply; ICICI Bank top gainer

Despite this stellar performance, domestic brokerage firm Sharekhan believes the stock still has room for further growth. According to brokerage, the bank’s return ratios have remained subdued compared to peers due to elevated provisions and high operational costs but are likely to improve from hereon.

The improvement in asset quality and a strong outlook are likely to help in the faster normalisation of credit costs, thereby improving the visibility for improvement in return ratios, it noted. 

The bank aims for NNPL <1% and plans to run down most of the restructured book by the end of FY24E. Furthermore, a decrease in retirement-related provisions is expected to enhance cost ratios. PNB targets 12–14% loan growth going forward, and its CET-1 ratio, excluding H1FY24 profits, remains comfortable at 0.2%. Recently, an increase in the risk weights in unsecured loans and loans to NBFCs would have a 30–40 bps impact on the capital buffer.

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Sharekhan emphasised that the bank’s excess liquidity profile (CD ratio 68%, LCR 150%) positions it well to expand the loan book without concerns about deposit growth in a challenging deposit growth environment.

The brokerage anticipates that the bank is poised to achieve higher growth as its balance sheet strength improves going forward. Strong loan growth, stable margins, and reduced operating expenses are projected to contribute to robust pre-provision operating profit (PPoP) growth, it said. 

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Overall, the brokerage maintains a stable to positive outlook on asset quality. Lower slippages formation and healthy recoveries are likely to boost asset quality further and will help in the faster normalisation of credit costs, it added.

With healthy PPoP growth and the normalisation of credit costs, the brokerage foresees an improvement in return ratios. It expects return on assets (RoA) and return on equity (RoE) to reach 0.9% and 12%, respectively, in FY25E.

In light of these factors, the brokerage continued with its ‘buy’ rating on the stock with a target price of 105 apiece, reflecting an upside of 22% from its current trading price.

Also Read: ICICI Bank stock hits new record high; is there more rally ahead?

Robust performance in Q2FY24

For the September ending quarter, the bank reported a 20% YoY and 4.4% QoQ surge in net interest income (NII) to 9,923 crore, while the net interest margin (Domestic) came in at 3.24% against 3.11% in Q2 FY23 and 3.21% in Q1 FY24.

The bank’s pre-provision operating profit (PPOP) stood at 6,216 in Q2FY24, registering a growth of 11.67% over the corresponding quarter of the previous year at 5,567 crore.

The provisions dropped 29.8% YoY to 3,444 crore. The drop in provisions and improvement in operating profit growth led the bank to record a net profit of 1,756 crore in Q2 FY24, the highest in 14 quarters, with a 327% YoY improvement. During the same period last year, the bank recorded a net profit of 411 crore.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 07 Dec 2023, 02:45 PM IST

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