LKP Securities
Punjab National Bank (Buy)
Target: ₹50
CMP: ₹43
PNB emerged stronger during the pandemic year FY21 compared to the previous financial year.
The absolute GNPA declined 6 per cent y-o-y to ₹1 lakh crore and absolute NNPA stood flat at ₹38,500 crore. Provision coverage for bad loans improved to 80.1 per cent. Moreover, the NII/NIM drag down in Q4-FY21 is insignificant due to one time impact of interest reversal from pro-form slippages.
Furthermore, deposit growth was stable, with healthy CASA growth of 11 per cent y-o-y, driven by strong growth in saving deposits (12 per cent y-o-y) and CASA ratio improving to 45 per cent. Additionally, improvement in CET-1 (10.6 per cent) is likely to propel balance sheet growth and carries lower dilution risk.
The major concerns of higher SMA 2 (5 per cent of book) and restructured (nearly 0.4 per cent of book) are already in the price. The bank expects bulky resolution in FY22. The asset quality concerns are likely to be absorbed by internal accruals and we estimate a maximum net-worth erosion of 20 per cent.
Inexpensive valuation of 0.5x PBVPS and strong associates (PNB Housing, PNB Gilts) makes PNB a contra play and we recommend a Buy.