Punjab National Bank - Target Price Rs. 1021 - Dolat Capital

PNB has been derisking its loan portfolio during the past 6-7 quarters which has impacted its balance sheet growth. The focus clearly lies in improving the asset quality and we believe that it should help the bank contain fresh slippages going forward.

- PNB has been among the few PSBs which saw a reduction in gross NPLs both in % terms and on absolute basis during Q4FY13. NPL recoveries and upgrades have also been stable. The slide in coverage ratio has been reversed with improvement in provisioning coverage ratio from 56% to 59%.

- PNB has historically delivered ROAs which was higher than most of its peers. While the return ratios dipped in FY13 on asset quality and margin pressures, we expect the return ratios to improve from FY14 onwards. PNB's average ROA of 1.1% during FY14E-15E should be one of the best amongst PSBs.

- We believe that the loan and deposit growth should also start improving and grow at CAGR of 18% during FY13-15E as against the CAGR of 13% during the past two years. We expect PNB's credit cost to decline by around 35bps over the next two years aiding the 21% CAGR in net profit by FY15E.

- Current valuations at 0.8x FY14E BVPS forecast is attractive in our view. PNB is one our top picks with a Buy rating and target price of Rs 1,021 based on PBR of 1x on our FY14E BVPS forecasts. Slower than expected NPL recoveries is a key risk to our call.

Source : Equity Bulls

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