Broker’s call: PNB (Buy)

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Target: 80 rupees

CMP: 60.44

Punjab National Bank (PNB) has been reporting consistently strong earnings for many quarters. The wholesale book has been significantly cleaned up and further recovery is expected in fiscal 24E. In addition, the bank’s credit growth was strong in fiscal ’23 and is expected to be on a similar path in fiscal ’24.

We expect the bank’s NIMs to remain unchanged with the MCLR book repricing (35 percent) in progress. Our investment thesis is based on de-stressing companies while maximizing recovery, risk-adjusted growth, and an “inexpensive” valuation. Bad loan recovery and sale to NARCL could clean up the balance sheet as the NPA normalizes.

Moreover, steady growth of credit coupled with lower cost of credit is likely to boost rates of return; Which makes the stock highly rewarding (0.7x standalone) with strong partners (PNB Housing, PNB Gilts).

We expect PNB’s loan book to increase cautiously at a compound annual growth rate of 11-12 percent during FY23-25, driven by retail book growth. In our view, the Bank’s cost of credit will normalize by FY24E and estimate ROA/ROE at 0.5% and 7.8% in FY25. We value the standalone entity at 0.7xFY23E BVPS (105 Rs) and value associates and subsidiaries at ₹ 7 to reach the target price of ₹ 80. We recommend buying with a potential upside of 33 percent