On Tuesday, Citi maintained its Sell rating on Punjab National Bank (PNB:IN) stock but lowered the price target to INR96.00 from the previous INR105.00. The adjustment reflects the bank's recent performance, which included a return on assets (RoA) exceeding 1% with a profit after tax (PAT) of Rs43 billion. This figure surpassed Citi's estimate of Rs36 billion, bolstered by treasury gains of Rs16 billion and recoveries amounting to Rs14 billion.
Despite these positive outcomes, the bank experienced a decline in net interest margin (NIM) by 15 basis points quarter-over-quarter, contributing to a miss in net interest income (NII). Additionally, a significant increase in employee costs by 26% quarter-over-quarter, due to provisions from Accounting Standard 15 (AS-15), resulted in a greater than 15% miss in core pre-provision operating profit (PPOP).
Management has revised its fiscal year 2025 guidance, lowering the expected net interest margin to 3.5-3.75% from an earlier projection of 4%, and credit cost guidance for gross non-performing assets (GNPA) to 0.25-0.3%. In the context of a challenging operating environment, Citi anticipates a credit cost of 0.45%, 0.6%, and 0.7% over fiscal years 2025, 2026, and 2027, respectively. The bank's advances grew at a rate of 3.6% quarter-over-quarter, in line with deposit growth, but still trailed the industry average on a year-over-year basis.
Taking into account higher other income and lower credit costs, Citi has revised its earnings estimates upward by 10% for fiscal year 2025 and by 2% for fiscal year 2026. However, the core PPOP forecast has been revised downward by 10%. With an estimated core RoA of 0.7% and return on equity (ROE) of 10%, the new price target of INR96 is based on 0.8 times the estimated book value for fiscal year 2026.
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