Sharekhan is optimistic about Punjab National Bank (PNB) and suggests buying the stock with a target price of Rs 140, according to their report dated July 27, 2024.
Key Points from Sharekhan’s Report on Punjab National Bank:
- Asset Quality Improvement: PNB’s asset quality is steadily improving, leading to lower credit costs.
- Earnings: Earnings exceeded expectations in the first quarter of FY25, with a return on assets (RoA) of 0.82%, mainly due to reduced credit costs.
- Credit Costs: Core credit cost was 41 basis points annualized, down from 85 basis points in the previous quarter.
- Business Growth: Strong business momentum with advances and deposits growing by 5% and 3% quarter-on-quarter, respectively.
- PPoP Growth: Pre-provision operating profit (PPoP) growth was soft at 10% year-on-year due to lower other income. However, core PPoP was strong, increasing by 17% year-on-year.
- Future Expectations: The bank aims to achieve an RoA of around 1% before Q4FY25, with revised credit cost guidance of 0.5% of advances, down from the earlier estimate of 1%.
Outlook:
Sharekhan maintains a Buy rating for PNB with an unchanged target price of Rs 140. The stock is trading at 1.1x and 1.0x its estimated adjusted book value (ABV) for FY2025 and FY2026, respectively.
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