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Nirmal Bang Report
Punjab National Bank Q2 FY24 performance was better than our expectations, with net interest income/pre-provision operating profit/profit after tax being at a variation of 4.4%/-3%/39% versus our estimates. Profit after tax grew by 327% YoY, led by strong loan growth of 13.8% YoY, 11 bps YoY/3 bps QoQ expansion in net Interest margin to 3.11% and lower credit cost. Opex cost was elevated due to increased provision for wage revision.
With a healthy capital adequacy ratio of 15.1%, PNB is in a position to grow its loan book in double digits. The risk assessment model segment is seeing good traction. With lower credit/deposit ratio of 67.9%, excess statutory liquidity ratio of 6% and better risk density (risk-weighted assets to assets of 47.3%), the bank is in a good position to manage its NIM.
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We have raised our earnings estimates by 16.1%/32.2% for FY24E/FY25E after considering improvement in NIM, cost ratios and credit cost. However, return on assets /return on equity would still remain lower at 0.6%/9.3% for FY25E.
We roll forward our valuation to September 2025E adjusted book value of Rs 98.3, valuing the bank at 0.75 times.
We thus derive our target price of Rs 78 (Rs 71 earlier, valued at 0.75 times FY25E), which reflects an upside of 12%. Considering the recent rally in the stock price of PNB and lower return ratios, we maintain 'Accumulate'.
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