Punjab National Bank Q2 Results Review - Strong Quarter; Asset Quality Improves Sharply: Motilal Oswal

Motilal Oswal Report

Punjab National Bank reported a healthy quarter characterized by a sharp decline in provisions and healthy loan growth. Net interest income stood broadly flat QoQ, while net interest margin contracted 15bp QoQ. Pre-provision operating profit witnessed a slight miss amid higher opex in Q2 on account of the creation of AS-15 employee provision.

Management aims to increase the mix of RAM portfolio, which should result in steady margins. Asset quality continues to surprise with PNB seeing healthy recoveries and upgrades, resulting in the PCR to improve to 90%. SMA overdue (with loans over Rs 50 million) saw a marginal increase to 0.2% of domestic loans, while the recovery guidance continues to be at two times of slippages.

Thus, it guided the GNPA ratio to decline to ~3.5-3.75% (earlier guidance of 4%), while credit cost is guided at 0.25-0.3% (earlier guidance at 0.5%). We raise our EPS estimates by 8.9%/ 4.9% for FY25/FY26, factoring in a sharp reduction in provisions, we estimate an RoA/RoE of 1.0%/14.1% in FY26.

Reiterate Neutral with a target price of Rs 120, based on 1.0 times FY26E adjusted book value.

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