PNB and IndusInd Bank: Analysts Provide Insights on Financial Performance and Future Outlook

Analysts from JM Financial have shared their insights on Punjab National Bank (PNB) and IndusInd Bank shares. PNB is a major public sector bank, while IndusInd is a prominent private sector bank. PNB is classified as a large-cap stock, whereas IndusInd Bank falls under the midcap category.

Punjab National Bank (PNB) reported a strong performance in the recent quarter. The bank's profit after tax (PAT) increased by 14% year-on-year and 193% quarter-on-quarter, surpassing JM Financial's estimates by 8%. This growth was attributed to improved operational efficiencies, with operating expenses decreasing by approximately 13% quarter-on-quarter and credit costs lower than expected at 23 basis points compared to JM Financial's forecast of 34 basis points.

The net interest income (NII) of PNB saw a slight decline of 1% quarter-on-quarter, as the net interest margin (NIM) contracted by 9 basis points to around 2.4%. However, the management anticipates a cumulative NIM improvement of approximately 15 basis points in the second half of the year, driven by term deposit re-pricing benefits. Asset quality improved with gross non-performing assets (GNPA) and net non-performing assets (NNPA) at 3.45% and 0.36%, respectively, showing a reduction of 33 basis points and 2 basis points quarter-on-quarter.

Management has maintained its guidance for GNPA. They stated, "We have increased our earnings by approximately 15%-25% for FY26-28E on the back of improving operating leverage and lower credit cost. However, we build average ROA/ROE of 0.8%/12% for FY26-28E. Based on our new rating system, we upgrade stock to ADD (from HOLD earlier) with revised target price of INR 125 (vs. INR 105), valuing it at 0.9x FY27E Adj. BVPS."

IndusInd Bank faced challenges in its recent financial performance, reporting a net loss of INR 4.4 billion. This was due to a decline in loans and deposits by approximately 9% and 6% year-on-year, respectively, leading to consolidation in the balance sheet and resulting in subdued margins and operating performance. Additionally, higher-than-expected credit costs of around 3.2%, compared to JM Financial's estimate of 1.9%, were attributed to issues in the microfinance institution (MFI) portfolio.

The bank's net interest margin (NIM) contracted by 14 basis points quarter-on-quarter, which was more than JM Financial's forecast of a 10 basis point contraction. Subdued treasury income also impacted overall operating profitability, which was 21% lower than JM Financial's estimates. The elevated stress in the MFI portfolio contributed to higher credit costs, increasing by 113 basis points quarter-on-quarter.

The management emphasized its focus on enhancing risk management and underwriting processes while formalizing leadership structures by onboarding new leaders to strengthen strategic depth. The analysts commented, "We believe these changes will keep pressure on growth/RoE in the near to medium term before it starts reflecting positively."

Analysts' Recommendations for PNB and IndusInd Bank

For IndusInd Bank, analysts have reduced their earnings estimates by approximately 18%-70% for FY26-27E to account for balance sheet consolidation. They anticipate a loan compound annual growth rate (CAGR) of around 5% during FY25-28E and an average return on assets (RoA) and return on equity (RoE) of approximately 0.7% and 6%, respectively, over FY26E-28E.

Consequently, they have downgraded the stock to Reduce according to their rating system, with a revised target price of INR 775, valuing the bank at 0.9x FY27E book value per share (BVPS).

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