Punjab National Bank Ltd. was the top gainer in the Nifty Bank index on Thursday, after brokerage house Nomura upgraded its rating on the state-owned bank to 'buy' from 'neutral', citing the sharp correction in stock price over the last two months.
The brokerage house said it changed its stance after the incremental risk-reward ratio turned favourable. It pegged a price target at Rs 180 – a potential upside of 30 percent from Wednesday's close.
The bank's fundamentals remain shaky, said Nomura while lowering its net profit estimate for the current financial year by 56 percent. It maintained estimates for the next financial year.
Here are the highlights from the Nomura report:
- Near-term provisioning will remain elevated given the lower coverage of 41 percent.
- Street expectations of bad loan resolution more realistic now.
- Factoring in a 60 percent conversion of provisioning into bad loan.
- Large stock of prudentially written-off non performing assets provide comfort on recoveries/upgrades.
- Pre-provisioning operating profit pressure will continue given the weak systemic loan growth.
- Subsidiaries now contribute 33 percent of PNB's valuation, and will continue to accrete value.
- Asset quality risks largely discounted.
The Nomura report highlighted that valuations at 0.55 times its March 2019 book appears reasonable.
Shares of Punjab National Bank rose as much as 4.4 percent, the most in five months on Thursday.
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