PNB now a dud investment: Analysts
Shares of Punjab National Bank (PNB) on Wednesday hit their lowest level since June 3, 2016, falling nearly 12 per cent to ~75 levels, after reporting a record loss of ~134 billion in the January-March 2017-18 quarter – way higher than the ~26-27 billion loss expected by analysts.
The operating loss, the first in the bank’s history, in the recently concluded quarter stood ~4.5 billion.
The results have made analysts cautious on public sector banks (PSBs), especially PNB, which are saddled with large non-performing assets (NPAs).
Most analysts have cut their ratings and price targets for the stock in this backdrop. After the 2017-18 performance, PNB runs the risk of coming under the RBI’s prompt corrective action (PCA), they say. That apart, the limited visibility in any structural driver makes it an unpredictable investment story.
Though the stock could see a short-term bounce on news of capital infusion, stake sale, or cheap valuation support (given the strong liability franchise and subsidiary value), Kunal Shah of Edelweiss Securities prefers to steer clear of the counter on account of structural issues.
“We believe governance issues, operational challenges, uncertain business prospects and diluted franchise make it a dud investment proposition. FY18 events and weak earnings profile suggest it is on weak terrain (FY19 could also be a year of losses). Hence, we downgrade to 'REDUCE' with a revised target price of ~70,” he writes in a co-authored report.
Since the Nirav Modi scam broke in February this year, PNB has lost nearly 47 per cent on the BSE and is the worstperforming counter in the S&P BSE Bankex index. In comparison, the S&P BSE Bankex has gained 2 per cent, while the S&P BSE Sensex has rallied over 8 per cent during this period, the ACE Equity data show.
Analysts at Motilal Oswal Securities, too, feel that the bank’s performance in 2018-19 could remain under pressure, given the sharp rise in stressed assets. Though they were expecting a weak performance from the bank in the March quarter of 2017-18, the results delivered a negative surprise.
“A sharp rise in stressed assets, a steep decline in Common Equity Tier 1 (CET-1) ratio and impending provisions (on gratuity, investment depreciation, IBC etc.) will likely remain an overhang over FY19. We cut FY20E profit after tax (PAT) estimate by 44 per cent and revise our price target to ~85 (from ~160), valuing the bank at 0.6x Mar’20E book value. Downgrade to Neutral (from Buy),” analysts at Motilal Oswal Securities said in a report.