10 Jul Buy Punjab National Bank; target of Rs 80: LKP Research
Buy
LKP Research’s research report on Punjab National Bank
Punjab National Bank (PNB) has consistently been reporting robust earnings since many quarters. The wholesale book has cleaned up significantly and further recoveries are expected in FY24E. Additionally, the bank’s credit growth was robust in FY23 and expected to be in same trajectory for FY24E. We expect the bank’s NIMs to stay intact as MCLR book (35%) re-pricing in underway. Our investment thesis is based on 1) Easing corporate stress with higher recovery, 2) Risk adjusted growth and 3) An “in-expensive” valuation. A bad loan recovery and sell off to NARCL may clean up the balance sheet with NPA normalization. Furthermore, steady credit growth along with lower credit cost is likely to boost the return ratios; which makes the stock rewarding at in-expensive valuation (0.7x standalone) with strong associates (PNB Housing, PNB Gilts).
Outlook
We expect the PNB’s loan book to fatten cautiously at CAGR of 11% – 12% over FY23-25E, led by retail book growth. In our opinion, the bank’s credit cost will normalise further by FY24E and estimate return ratio ROA/ROE of 0.5% and 7.8% in FY25E. We value the standalone entity at 0.7xFY23E BVPS ( ₹105) and value of associates and subsidiaries at ₹7 to arrive at a target price of ₹80. We recommend BUY with a potential upside of 33%.
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