Punjab National Bank (PNB) has been making headlines with an impressive stock performance, marking its fourth consecutive session of gains and hitting a remarkable 52-week high. The surge is attributed to the bank’s robust Q3FY24 results and its strategic fundraising plan. However, despite these positive developments, brokerage firm Elara Securities has maintained a ‘sell’ call on PNB, citing concerns over its operating performance and expensive valuations.
Stock Performance and Elara’s ‘Sell’ Call
Despite PNB’s stock hitting a 52-week high and witnessing a surge of 12.3% in the last four sessions, Elara Securities has retained its ‘sell’ recommendation. The target price of ₹80, indicating a potential 28% downside, is influenced by the bank’s lagging operating performance and what Elara deems as expensive valuations.
Read More : PNB Board Approves ₹7,500 Crore Fund Raise through QIP/FPO in FY2024-25
Financial Highlights and Stock Movement
In January 2024, PNB’s stock rose over 14%, extending its positive trend for the third consecutive month. The bank’s stock has more than doubled investor wealth over the past year, surging over 111%. The recent 3.2% rise in today’s trading session to ₹110.95 and closing at ₹109.24 underlines the strength of this positive momentum.
Q3FY24 Financial Performance
The December quarter proved to be a game-changer for PNB. The bank reported a staggering 253% YoY surge in standalone net profit, reaching ₹2,223 crore compared to ₹629 crore in the same period last year. Net interest income witnessed a 12.13% YoY improvement, reaching ₹10,293 crore.
Asset Quality Improvement and Provisions Decline
PNB demonstrated substantial improvement in asset quality, with the Gross Non-Performing Assets (GNPA) ratio improving by 352 basis points YoY to 6.24% in Q3FY24. The Net Non-Performing Assets (NNPA) ratio also improved by 234 basis points YoY to 0.96%. Provisions saw a significant decline of 41.8% to ₹2,739 crore in Q3FY24, contributing to the overall stellar performance.
Strategic Fundraising Plan
PNB’s board approved a fundraising plan to raise ₹7,500 crore through Qualified Institutions Placement (QIP)/Follow-on Public Offer (FPO) during 2024-25. While this move has positively influenced the recent stock performance, Elara questions whether there is further room for improvement in core metrics.
Elara’s Analysis: Challenges and Opportunities
Elara Securities acknowledges PNB’s Q3 performance exceeding estimates, fueled by higher Net Interest Income (NII) and controlled operating expenses. However, concerns linger over the bank’s consistency in core Pre-Provision Operating Profit (PPOP) and its profitability. Elara emphasizes that PNB still scores lower than peers, and while improvement is evident, the road to recovery remains a long one.
Read More : Rupen Rajguru’s Insights on Interim Budget, Market Expectations, and Q3 Earnings
NIM Strain and Operational Performance Outlook
Elara anticipates strain on Net Interest Margins (NIMs) with likely rising funding costs. The firm expects core operational performance, excluding one-offs, to continue lagging. While the recovery trend has contributed to the recent outperformance of PNB, Elara believes sustained improvement may depend on persistent tailwinds.
Conclusion: Balancing Optimism with Caution
In conclusion, Punjab National Bank’s recent successes have propelled its stock to new heights. However, Elara Securities urges caution, highlighting concerns over the bank’s operational performance and valuations. Investors should weigh the impressive Q3 results against the challenges ahead, making informed decisions based on a thorough understanding of both the positives and potential pitfalls.