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Nirmal Bang Report
Punjab National Bank's Q1 FY25 net interest income/pre-provision operating profit/profit after tax came in at a variation of -2.8%/-10%/ 19.8% versus our estimates. PAT was better than consensus estimate by 10% at Rs 32.5 billion (up by 159% YoY and 8% QoQ), supported by lower provisioning expenses (down by 66.9% YoY and 17.4% QoQ).
Advances growth stood at 13.9% YoY on the back of growth in the retail segment. Deposit growth continued to remain lower at 8.5% YoY due to pressure on current account and savings account deposits. Gross non-performing asset improved from 5.7% in Q4 FY24 to 5% but still stood higher compared to other large public sector banks.
We have valued PNB at 1.1 times June-26E adjusted book value (same as earlier) and have derived target price of Rs 124 (Rs 120 earlier).
Our target multiple of 1.1x June'26E ABV is at a 78% premium to the past five-year average multiple of 0.62 times; this captures an earnings CAGR of 40.5% over FY24- FY26E on the back of loan CAGR of 12.1%, stable margins and improving opex ratios and credit costs, which will result in return on asset of 0.8%/0.9% in FY25E/FY26E.
However, since the return ratios remain lower despite pick-up in recoveries, we maintain an ‘Accumulate' rating on PNB.
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