Looking To Buy PNB Stock? Here Is What The Management Indicated

Analysts at Prabhudas Lilladher Pvt had a recent interaction with MD & CEO of PNB. According to a report by Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd indications are that the bank is on the mend with better visibility on stress reduction led by sustained recoveries while underwriting has become tighter.

Asset quality to improve

According to the Prabhudas Lilladher report, the asset quality is set to improve with sharper focus on recoveries. To avoid further asset quality lapses, most underwriting is now done centrally and branches would only mobilize proposals. Hence fresh assets acquired since July'20, have seen significantly low stress levels with NNPA in agri at 0.25%, retail 0.38% and corporate 0.1%. Guidance is to bring down GNPA to 9.0-9.5% by Mar'23 and increase PCR to 70% from 66% currently. While system loan growth is strong at 16-17%, PNB would remain conservative and prioritize strengthening balance sheet which should result in credit growth between 12-14%. Basis Sep'22 BV, PNB is trading at a valuation of 0.7x compared to 1.0x for BoB and 1.4x for SBI.

Loan growth guidance of 12-14%

The Prabhudas Lilladher notes that while systemic loan growth is strong at 16-17%, PNB would target a credit growth in the range of 12-14%. "However, once balance sheet is stronger, bank would focus on higher growth in FY24 and FY25. Corporates have become risk averse with regards to leverage which would control slippage. Currently, there is high demand from segments from like roads, chemicals, gas and NBFCs. Bank has entered into co-lending arrangements; however, system integration needs to be done for a successful partnership. CASA is strong at 45% while there is balance sheet cushion in the form of excess SLR to the tune of Rs500-600bn which can fund growth," the report adds.

Capital would be raised at an appropriate time but without dilution

The bank Recently raised Tier-2 of Rs40bn and AT-1 bonds of Rs26bn while additional Rs10bn could be raised in Dec'23 if rate permits, the report noted. "However, no equity dilution would be done. The company has received approval for stake sale in UTI AMC although it would be finalized in some time. Stake in PNB Housing stake would be diluted from 32.57% currently to below 30% by participating in right issue to the tune of Rs 5 bn, remaining rights would be renounced," Gaurav Jani has stated in his report. No, "buy" target price has been set on the stock of PNB.