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Synopsis : PNB shares surge 61%, but 'Sell' ratings persist due to recent rally. Q4 profit rises 160%, yet PPoP misses. Brokerages cautious, foreseeing limited valuation upside.
PNB shares have surged by 61% in the past six months, yet both Nirmal Bang Institutional Equities and Kotak Institutional Equities continue to maintain a 'Sell' rating, attributing it to a recent sharp rally.
Despite Punjab National Bank (PNB) reporting a remarkable 160% year-on-year profit increase in Q4, some brokerages, including Nirmal Bang Institutional Equities and Kotak Institutional Equities, remained unimpressed and upheld their 'Sell' ratings due to the recent stock rally. PNB's Q4 profit surge was mainly driven by reduced provisions, though its pre-provision operating profit (PPoP) fell short of analyst estimates.
Kotak noted PNB's superior incremental asset quality compared to some peer banks and highlighted that lower provisions have been enhancing its return ratios. Nevertheless, they maintain a 'Sell' rating, valuing the bank at Rs 105, reflecting one-time book value per share, citing the recent rally.
Incorporating March quarter results and anticipating further asset quality improvements from ongoing recoveries, Nirmal Bang slightly revised its PNB earnings estimate for FY26 by 3.5%. However, despite these adjustments, they project lower return ratios for FY26 and maintain a downside target of Rs 110, aligning with the 'Sell' rating due to the recent stock price surge.
Antique Stock Broking commented that PNB's valuation, comparable to its PSU bank peers, offers limited potential for re-rating, given its lagging return ratios and capitalization.
PNB's Q4 results presented a mixed picture, with profit surpassing expectations driven by reduced provisions, while PPoP missed estimates due to higher operational expenses, according to Motilal Oswal Securities. They revised EPS estimates upward and reiterated a 'Neutral' stance with a revised target of Rs 130.
Despite depressed return ratios for FY2024, attributed to elevated credit provisions, Kotak foresees a sharp decline in credit costs in FY2025 due to improved provisions and positive trends in fresh slippages.
Kotak also highlighted PNB's weaker non-interest income compared to peers, resulting in lower return ratio expectations. They are keen to observe the bank's progress in enhancing operating profitability.
Related Questions
1. What has been the recent performance of PNB shares, and why do some brokerages maintain a 'Sell' rating?
PNB shares have surged by 61% in the past six months. However, brokerages like Nirmal Bang Institutional Equities and Kotak Institutional Equities maintain a 'Sell' rating due to a recent sharp rally in the stock, despite the bank reporting a significant profit increase in Q4.
2. What are the reasons behind Kotak and Nirmal Bang's decision to uphold a 'Sell' rating for PNB?
Kotak and Nirmal Bang maintain a 'Sell' rating for PNB despite its Q4 profit surge due to reduced provisions. They cite the recent stock rally as the primary reason and express concerns about the bank's return ratios and valuation.
3. How do brokerages like Kotak and Nirmal Bang project PNB's future earnings and return ratios?
Kotak and Nirmal Bang slightly revise PNB's earnings estimate for FY26, anticipating further asset quality improvements. However, they project lower return ratios for FY26 and maintain a 'Sell' rating due to the recent stock price surge.
4. What are the opinions of brokerages like Motilal Oswal and Antique Stock Broking regarding PNB's performance?
Motilal Oswal Securities revised PNB's EPS estimates upward and maintained a 'Neutral' stance with a revised target of Rs 130, despite mixed Q4 results. Antique Stock Broking commented on PNB's valuation and its potential for re-rating.
5. What future trends and challenges are highlighted by Kotak regarding PNB's performance?
Kotak foresees a decline in credit costs in FY2025 due to improved provisions and positive trends in fresh slippages. They also highlight PNB's weaker non-interest income compared to peers and emphasize the importance of enhancing operating profitability.
6. What are the key takeaways from the various brokerages' assessments of PNB's performance?
Despite a significant profit surge in Q4, some brokerages like Nirmal Bang and Kotak maintain a 'Sell' rating for PNB due to concerns about the recent stock rally. Various assessments highlight challenges in return ratios, valuation, and regulatory delays.
