Punjab National Bank (PNB), the state-run lender, reported a 12.8% year-on-year (YoY) increase in net profit for the second quarter of FY27, aided by healthy core income growth and a sharp decline in credit provisions, even as fresh slippages showed a marginal uptick.
Brokerages remained divided on PNB Q2 results, with J.P. Morgan and Kotak Institutional Equities maintaining positive ratings while Citi retained its sell recommendation. All three brokerages raised their price targets, citing improving margins, healthy loan growth and resilient asset quality.
PNB reported a net profit of Rs 5,532 crore in Q2FY27, compared with Rs 4,904 crore a year earlier. Net interest income (NII) rose 10.8% YoY to Rs 11,601 crore. Net interest margin (NIM) improved eight basis points sequentially to 2.58% from 2.50% in the June quarter.
J.P. Morgan said the bank's profit exceeded estimates, supported by stronger NII and lower credit costs. It maintained its 'Overweight' rating on PNB shares and raised its September 2027 price target to Rs 134 from Rs 129.
J.P. Morgan expects further NIM expansion in the second half of FY27, supported by a shift towards higher-yielding retail, agriculture and MSME (RAM) loans, alongside declining funding costs. It expects credit costs to remain below management's guidance.
However, the brokerage firm flagged the need to improve fee income and noted moderation in the current account savings account (CASA) ratio. It also highlighted a potential one-time impact of Rs 500 crore from the transition to expected credit loss (ECL) provisioning norms.
J.P. Morgan believes PNB has delivered a steady turnaround in asset quality, leading net NPAs to reduce to sub-30 bps levels, with minimal incremental net slippages. The legacy stressed asset book and technically written-off book further provide a degree of visibility on recovery income.
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The brokerage firm believes these can support revenues going forward. Further, PNB has gained credit market share in the last 12-18 months, and JPMorgan believes the bank is well poised to defend share over the next two to three years.
LDR at 72% is sub-optimal and offers room for improvement. It believes valuations remain attractive for PNB.
Kotak Institutional Equities maintained its ‘Add' rating and increased its PNB share price target to Rs 130 from Rs 125. It cited healthy loan growth, particularly in the SME and international businesses, alongside improving margins and negligible credit costs.
Kotak expects PNB's profitability to benefit from lower funding costs and the shedding of low-yielding advances.
However, Citi retained its ‘Sell' rating on PNB shares but raised its price target to Rs 110 from Rs 103. The brokerage highlighted stronger-than-expected loan growth, driven by retail, agriculture and overseas lending.
Lower funding costs and the reduction in low-yielding corporate exposure supported margins. Citi also noted resilient asset quality, improving gross non-performing asset ratios and stronger provision buffers.
However, the sell rating indicates a more cautious stance on the stock's investment prospects despite improving fundamentals.
Overall, improving margins, controlled credit costs and healthy loan growth remain key positives for PNB. However, deposit mobilisation, fee income growth and the sustainability of margin expansion will be important factors to monitor.
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