PNB shares to rise by over 17 pct, buy at Rs 110: Sharekhan

After the Rs 15,000 crore that hit Punjab National Bank (PNB), it was at the edge of entering RBI’s prompt corrective action (PCA) framework. But, the bank has made a comeback since them and experts are now giving a buy rating on its share with stable outlook. On Monday, PNB share prices surged by over 2% after touching an intraday high of Rs 95.05 per piece on Sensex. However, at around 1224 hours, the shares were trading at Rs 94 per piece, slightly up by 0.91% on the same index. Talking about this PSB, Sharekhan said, "PNB had come close to being placed under the Reserve Bank of India’s (RBI) prompt corrective action (PCA) framework, but its recent recovery and controlled slippages along with the stake sale benefits would have helped it in avoiding the fate."

Following the fraud, PNB has done significant amount of business and process enhancement/ upgradation to mitigate operational and credit risk, which Sharekhan believes is a positive.

“Underwriting standards as well as risk management are much needed to improve in most PSU banks, and PNB improving on those parameters is a positive. Going forward, considering the capital position and asset-quality scenario, we opine it would be safe to assume a decent growth outlook for the bank, with more focus on growth opportunities than before," it added.

Apart from this, experts also believe that further resolution/recovery in NCLT exposures as well as other corporate/ infrastructure exposures may be positive triggers for the banking industry as a whole, including PNB.  However, expect margins to remain in a range-bound fashion. 

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PNB trades at reasonable valuations of <1x its FY2021E book value, as valuations reflect market concerns over growth and asset performance. Sharekhan stated, "We introduce our estimates for FY2021E and rollover the price target (PT). We believe the asset quality and, therefore, the earnings outlook have improved for the bank. Hence, we maintain our Buy rating on the stock with a revised PT of Rs. 110."

They also highlighted that on one side reducing stress asset and MCLR hikes would help, risks of chunky slippages/haircuts have notably waned. Moreover, further progress on non-core divestment will be keenly monitored for PNB. Comparing current market price and Sharekhan’s target, PNB is set to rise further by over 17% in near term. Hence, one can still continue to buy this stock.