JPMorgan Upgrades PNB To 'Overweight' On Better Growth, Asset Quality; Shares Gain
JPMorgan raised its target price to Rs 72 from Rs 34 on the stock, implying a potential upside of 28%.
Shares of Punjab National Bank Ltd. rose after JP Morgan changed the bank's rating to 'overweight' from 'underweight,' which it had had for a long time.
The rating upgrade comes as the company's net slippages in Q2 have "gotten into negative territory and recovery momentum is outpacing new non-performing loan creation, plus there is minimal stress in corporate loans", the brokerage said.
However, the earnings estimate will remain under pressure in FY23 and FY24 as the company catches up on back-book provisioning, it said. "This keeps our FY24 estimate broadly unchanged," the brokerage said. "However, with limited new stress formation and system growth itself picking up, we see the further scope of re-rating at PNB."
JPMorgan raised its target price for PNB shares from Rs 34 to Rs 72, implying an upside of 28%. However, the 'buy' call is not a long-term call, it said.
"While PNB's operating profit metrics are comparable to those of other PSU banks," the brokerage said, "return on assets is materially lower due to higher provision. This gap could start to narrow as provisions start reducing."
The bank, however, continues to lose market share in both credit and deposits, unlike the State Bank of India and Bank of Baroda Ltd., and hence a discount to them will be fair in our view, JP Morgan said.
Shares of the company gained as much as 4.1% to Rs 58.55 apiece on Monday, before closing 3.3% higher at Rs 58.1.
Of the 19 analysts tracking the company, seven maintain 'buy', six suggest 'hold', and six recommend 'sell,' according to Bloomberg data. The average 12-month consensus price target implies a downside of 22%.
