Brokerages Downgrade PNB After Largest-Ever Quarterly Loss

Most brokerages have turned bearish on fraud-hit Punjab National Bank after it posted largest ever quarterly loss by an Indian lender.

The state-run lender reported a loss of Rs 13,420 crore in the quarter ended March 31, compared with Rs 3,840 crore loss predicted in a Bloomberg survey and a Rs 2,620 crore profit earlier. Provisions soared 254 percent to Rs 20,350 crore.

Besides downgrading the stock, analysts cut their target price by as much as 50 percent citing a 200-basis point drop in capital adequacy ratio, below the regulatory requirement.

Japanese brokerage firm Nomura said the fourth quarter loss and next year's loss estimate could lead to a spiral of capital-raising at low multiples. “Capital need at low prices is the key negative catalyst for PNB.”

Here are key highlights from brokerage notes on PNB:

Credit Suisse

• Capital depletion will lead to loan book contraction.
• Could incur losses even in FY19 on residual fraud provisions.
• PNB will likely need a Balance Sheet contraction to conserve capital.

Edelweiss

• Governance issues, operational challenges, uncertain business prospects and diluted franchise makes it a dud investment proposition.
• We do run the risk of short term spikes in the stock on news of capital infusion, stake sale or cheap valuation support.
• Prefer to stay away due to structural issues.

Jefferies

• The lender is in need of an urgent bailout.
• PNB may also be restricted to conduct normal business.
• It will likely face significant operational challenges in the near term.

Motilal Oswal

• A sharp rise in stressed assets, a steep decline in CET-1 ratio and impending provisions to remain an overhang over FY19.
• Reduce FY20E PAT by 44 percent and value the bank at 0.6 times March 2020 estimate book value.