PNB up 59% this year, will the momentum continue?

The stock is up 59 percent this year as of December 15, while the equity benchmark Sensex has gained 6 percent during the same period.

The stock has been on a gaining streak after the September quarter earnings announcement. Even though the lender’s net profit dipped, its net interest income (NII) grew and gross non-performing assets (NPAs) declined.

PNB saw a 62.8 percent dip in net profit to ₹411.3 crore for the September quarter of FY23 against a net profit of Rs1,105.2 crore in the year-ago period. PNB’s total income in Q2FY23 increased to ₹23,001.26 crore as against ₹21,262.32 in the period a year ago.

NII grew 30.2 percent to ₹8,271 crore in Q2FY23 from ₹6,352.8 crore a year ago.

The bank’s NPAs declined to 10.48 percent of the gross advances from 13.36 percent earlier. The gross NPAs or bad loans stood at ₹87,034.79 crore at the end of the second quarter of FY23, compared to ₹100,290.85 crore a year earlier. The net NPA, too, declined to 3.80 percent as against 5.49 percent.

Brokerage firm Prabhudas Lilladher expects PNB’s NIM (net interest margin) to improve in the second half of FY23 (H2FY23) albeit at a slower rate.

“The bank would resort to an SA (savings account) rate hike only if other PSU banks increase rates. Ageing-related provisioning would be done in H2FY23 to strengthen the balance sheet and boost PCR (provision coverage ratio) although the intensity of overall provisions in H2FY23 would be lower compared to H1FY23. Hence, compared to FY22, PAT (profit after tax) for FY23 could be much better,” said Prahudas Lilladher.

We collated the views of analysts and brokerage firms to understand what the fundamental and technical indicators are indicating about the stock. Have a look:

Fundamental views

Brokerage firm: JPMorgan

JPMorgan has upgraded PNB from a long-standing ‘underweight’ to an ‘overweight’, raising the target price to ₹72 from ₹34.

“This follows from the company’s Q2 disclosures that show that net slippages have got into negative territory and recovery momentum is outpacing new NPL creation plus there is minimal stress in corporate loans (SMA-2 0.1%). Provisions, hence, are largely related to back book (net NPL 3.8 percent, restructured 1.7 percent) which are higher than SBI and Bank of Baroda and the market will likely look through it via a one-time book value adjustment,” said JPMorgan.

“Capital and liquidity are reasonably comfortable with CET-1 at 10.9 percent and LCR at 160 percent in an environment of tighter deposits at private banks. The stock has seen a re-rating led outperformance recently and we believe that, with limited new stress formation and system growth outlook improving, this trend could continue in the near term,” said JPMorgan.

Analyst: Rameshver Dongre, Research Analyst – Equity Research, CapitalVia Global Research

PNB shares hit their 52-week high of ₹62.05 on December 15. From the yearly low of ₹28.05, we saw a price increase of almost 121 percent.

Limited NPA generation and a positive outlook for credit are the major drivers of this upswing.

“Since the stock is currently priced at 0.61 times book value and has shown positive profit growth over the past five years, taking a positive stance on this stock may be a wise choice for investors,” said the analyst.

Technical views

Analyst: Vaishali Parekh, Vice President – Technical Research, Prabhudas Lilladher

The stock has given a decent rally in the last two months.

It has touched the high level of ₹62 with some profit booking witnessed but has been maintaining the overall trend. The trend shall get weak only a breach below the ₹55 level from here on which will trigger further selling pressure.

“We anticipate the stock to move further after the consolidation or short correction perhaps which may be witnessed in the coming days and after that continue with the uptrend for the next targets visible at around ₹64 and ₹70,” said the analyst.

Analyst: Jigar S. Patel, Senior Manager – Equity Research, Anand Rathi Share and Stock Brokers

From June 2022 to date, PNB has given a whopping return of nearly 130 percent. At the current juncture, it is sustaining above its historical resistance of ₹55 which is adding strength to the counter.

On the indicator front, weekly DMIs have made a super bullish structure alongside rising volume and price (refer to the chart given below) which is a very positive indication for further upside in the counter.

“One can buy at the current market price in small tranches and another around ₹53-54 levels. The upside target is seen around ₹72 and a stop loss would be ₹46,” said the analyst.

According to a MintGenie poll, 17 analysts on average have a ‘sell’ call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

This article first appeared on MintGenie