Punjab National Bank stock yet to hit bottom

Experts see share price slipping to ~90-100 levels

Shares of Punjab National Bank (PNB) are down 28 per cent in four trading sessions, including Monday’s 7.4 per cent fall.

The nearly ~111-billion decline in PNB’s market value, following the ~114-billion fraud, may suggest that there is value in the counter. But, most experts said investors should not hurry as the market had not factored in the event completely. So, the bottom is yet to come.

The bank is facing pressure on account of non-performing assets (NPAs). With the latest fraud, these will weigh on its net worth, even if the final liability may be lower than the declared fraud amount. “The stock can find a bottom between ~100 and ~110, which is roughly three times the reworked adjusted book value (after) accounting for an odd ~340 billion of outstanding net NPAs and assuming the maximum hit from the scam will be 50 per cent (of the fraud amount),” said G Chokkalingam, founder, Equinomics Research and Advisory.

At ~114 billion, the hit could be about 23 per cent of PNB’s current net worth. Given that the lender will need to provide for the fraud (amount not clear) as well as expected haircuts on the loans being resolved at the National Company Law Tribunal, the stock is likely to remain under pressure.

“Apart from additional liabilities on the back of this fraud and NPA pressure, potential fines charged by various authorities, domestic and foreign, will affect the bank’s profits,” an analyst with a domestic brokerage said.

There could be some pressure on the bank’s business, and on earnings. “When this kind of a fraud happens, the bank’s attention moves away from business to other things like containing losses and improving systems,” the analyst said.

Against this backdrop of uncertainties, and with the bank’s overall exposure to the gems and jewellery industry, forecasting earnings and financial performance becomes difficult. “There are many uncertainties in terms of the value of assets (of the Nirav Modi group companies), how recoveries will be made, and potential haircuts on bad loans. These do not lend any confidence in terms of valuations. I see a downside till ~90-100 for the stock,” said another analyst.

Though recapitalisation funds to be infused by the Centre and expected sale of non-core assets will lower the bank’s burden, the PNB stock may see abrupt rallies that may not sustain till there are clear signs of improvement in its core business of lending. For now, do not bottom fish, caution experts.

Three PSU lenders informed exchanges about their exposure with PNB’s letter of undertaking — Allahabad Bank (~23.7 billion), Union Bank (~19.4 billion), UCO Bank (~26.6 billion). State Bank of India has an indirect exposure of ~13.7 billion.

Analysts say, these banks will have to provide for these amounts, which will impact their earnings in this quarter.