PNB Shares: Will Punjab National Bank FY25 Guidance Lift PSU Stock? Price Targets & More
PNB Shares: Will Punjab National Bank FY25, one of India’s leading public sector banks, recently released its Q1 results for FY25, which has garnered significant attention. With a whopping 159% year-on-year profit growth due to a sharp decline in provisions and robust recoveries, the bank’s performance looks promising. Let’s dive deeper into what these results mean for PNB’s stock, its future guidance, and the price targets set by analysts.
A Closer Look at PNB’s Q1 Performance
Substantial Profit Growth and Reduced Provisions
PNB’s Q1 results showcased a tremendous 159% increase in profits year-on-year. This surge is largely attributed to a significant reduction in provisions and healthy recoveries. The bank’s Gross Non-Performing Assets (NPAs) ratio also saw a remarkable improvement, plunging sharply. PNB has guided for a lower Gross NPA ratio of 4% for FY25, down from the previous 5%.
Credit Cost Guidance Cut
Another notable highlight from PNB’s Q1 performance is the reduction in credit cost guidance. The bank has lowered its credit cost guidance for the ongoing year to 0.5% from the earlier 1%. This move indicates PNB’s confidence in its ability to manage credit costs efficiently through higher recoveries and lower new slippages.
Analysts’ Take on PNB’s Performance and Guidance
Mixed Reactions on Return Ratios
While analysts have generally appreciated PNB’s Q1 results and the revised guidance, concerns remain about the bank’s return ratios. The tepid return ratios are seen as a hindrance to a stock rating upgrade, despite the strong performance.
Reduction in Capital Raising Plans
PNB has also decided to cut the quantum of capital to be raised during FY25 to Rs 5,000 crore from Rs 7,500 crore. This reduction reflects the bank’s improved financial health and its strategy to rely less on external capital.
Net Interest Margin (NIM) Guidance Maintained
Despite the positive results, PNB has maintained its NIM guidance for FY25 at 2.9-3.0%. While NII (Net Interest Income) broadly met expectations, NIM contracted marginally.
Brokerage Insights and Future Projections
MOFSL’s Perspective
Motilal Oswal Financial Services Limited (MOFSL) highlighted the sharp decline in provisions as a key feature of PNB’s Q1 results. Although the Pre-Provision Operating Profit (PPoP) missed slightly due to higher operational expenses, advances growth was robust. The bank aims to improve its share in the RAM (Retail, Agriculture, and MSME) portfolio, which is expected to support margins.
Asset Quality Improvement
PNB’s asset quality continues to improve, with recoveries and write-offs remaining high. The Provision Coverage Ratio (PCR) has improved to 88%, reflecting better asset quality ratios. MOFSL has raised its earnings estimates for PNB by 5.6% for FY25 and 0.8% for FY26, factoring in lower provisions, healthy NII, and steady margins. They have suggested a neutral rating with a revised target price (TP) of INR 135, up from INR 130, based on 1.1x FY26E BV.
Nirmal Bang’s Valuation
Nirmal Bang Institutional Equities values PNB at 1.1 times June 2026 adjusted book value (ABV), with a target price of Rs 124, up from Rs 120 earlier. This valuation represents a 78% premium to the past 5-year average multiple of 0.62 times. The brokerage expects an earnings Compound Annual Growth Rate (CAGR) of 40.5% over FY24-FY26E, driven by a loan CAGR of 12.1%, stable margins, and improving operational expense ratios and credit costs. However, they maintain an ‘Accumulate’ rating on PNB due to the lower return ratios despite the uptick in recoveries.
Conclusion
Punjab National Bank’s Q1 results for FY25 have shown a solid performance, with significant profit growth and improved asset quality. While the reduction in provisions and credit cost guidance is commendable, the lower return ratios remain a concern. The mixed reactions from analysts reflect these nuances, with some raising their earnings estimates and target prices, while others remain cautious due to the tepid return ratios.
As PNB continues to navigate through FY25 with its revised guidance and strategies, the bank’s performance in the coming quarters will be crucial in determining its stock’s trajectory. Investors should keep an eye on the bank’s ongoing recovery efforts and any further developments in its credit cost management and capital raising plans.
FAQs
1. What contributed to PNB’s significant profit growth in Q1 FY25?
The substantial profit growth of 159% year-on-year was primarily due to a sharp decline in provisions and robust recoveries.
2. How has PNB’s Gross NPA ratio changed?
PNB’s Gross NPA ratio has improved significantly, with the bank guiding for a lower ratio of 4% for FY25, down from the previous 5%.
3. What is PNB’s new credit cost guidance for FY25?
PNB has reduced its credit cost guidance for FY25 to 0.5%, from the earlier 1%.
4. How did analysts react to PNB’s Q1 results?
While analysts appreciated the strong Q1 results and revised guidance, concerns over tepid return ratios have hindered a stock rating upgrade.
5. What are the new target prices set by MOFSL and Nirmal Bang for PNB?
MOFSL has set a revised target price of INR 135, up from INR 130, while Nirmal Bang has increased its target price to Rs 124, up from Rs 120.
