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Motilal Oswal Report
Punjab National Bank has been reporting a healthy performance, with earnings driven by steady revenue growth and controlled provisions. With a comfortable CD ratio, the bank is well positioned to grow its loan book with continued focus on high-yielding RAM segments. MCLR repricing and effective CD ratio management are expected to cushion margins against elevated funding costs.
Asset quality continues to see a sharp improvement as recoveries and w-off continue to be healthy. Provision coverage ratio has thus improved to 88% and we estimate the net non-performing asset ratio to improve further. Special mention account overdue (with loans over Rs 50 million) remains under control at 0.15% of domestic loans, while the bank continues to guide for robust recoveries at ~two times of slippages.
PNB expects the credit cost and slippages to be contained at <1% and projects RoA of 1% by FY25 end. With a strategic focus on strengthening its balance sheet and targeting a further reduction in the NNPA ratio to 0.5%, PNB is poised to sustain profitability and we estimate a 44% CAGR in earnings over FY24-26.
We reiterate our Neutral rating with a target price of Rs 130 (premised on 1.1 times FY26E adjusted book value).
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