Punjab National Bank (PNB) is a state-owned and multinational banking and financial services company. PNB is based out of New Delhi, India and was founded in 1894. The bank began operations with an authorized capital of Rs.2 lakh and working capital of Rs.20,000 has now grown rapidly over the last century with market capitalization, as of 20 September 2018, of more than Rs.18,600 crore.
PNB’s products include financial products for individuals as well as for corporates, while it also offers services towards its international clientele. Apart, from basic banking services, PNB offers capital services such as mutual funds, depository services, merchant banking, among others. Let’s review the Bankbazaar Punjab National Bank’s Stock Analysis outlook and value on the basis of its recent financial performance to see if there are any stimulant for a stock price revision.
Punjab National Bank Financial Performance
* For the quarter ending 30 March 2018, the bank posted a decline in its standalone net profit at Rs.13,417 crore compared to a net profit of Rs.261.90 crore during the same period last fiscal.
* The lender’s net income interest was down by 16.8% to stand at Rs.3,063.4 crore as compared to Rs.3,683.5 crore the bank posted during Q4 FY17.
* While these numbers might reflect a downward trend, the bank had to set aside Rs.20,353 crore as provisions as against Rs.4,467 crore in the previous quarter. This was due to the Nirav Modi’s scam which was estimated to be more than Rs.14,000 crore.
* Also, the bank’s provisions towards bad loans stood at Rs.16,203 crore as opposed to Rs.2,996 crore reported during Q3 FY18.
* Despite reporting a massive loss during Q4 FY18, the bank reported lower than expected net loss of Rs.940 crore as against Rs.13,417 crore reported during the previous quarter. This reflects the bank’s aim to reduce its loss and take strategic decisions for the overall performance of the bank.
* The drop in the bank’s net loss in Q1 FY19 was attributed to the drop in provisions, which is a strong sign that the bank is serious about clearing its bad debts.
* The biggest change in the performance of PNB came from revenue as it improved by 4.2% year-on-year to stand at Rs.15,072.4 crore as compared to Rs.14,468.1 crore posted a year ago.
* Additionally, for the said quarter, the bank reported that its net income from interest rose significantly by 21.7% year-on-year to stand at Rs.4,692 crore compared to Rs.3,855 crore posted during the same period last fiscal.
The Public Sector Unit (PSU) banks are showing some signs of improvement, as many analysts believe that the worst is over for the banking sector. Shares of some of the top public and private banks have gathered steam as investors are shifting their focus to large corporate lenders like the Punjab National Bank.
Here’s Why the Bank Stocks could be a Good Bet:
* The lender has already made provisions in the Nirav Modi fraud case by setting aside Rs.7,178 crore in the quarter ending 30 March 2018 and for the quarter ending 30 June 2018, the lender has kept aside Rs.1,863 crore.
* The remaining will be spread over the next two quarters, after which the lender would have made complete provisions. However, it’ll take further two quarters to break even from reporting losses.
* That said, the bank can always increase its capital via stake sales in PNB Housing Finance and PNB Metlife, its subsidiaries which have been performing well in the stock market.
* But the most important aspect is that PNB has recovered almost Rs.8,500 crore of its bad loans in the Q1 FY19 as compared to almost Rs.5,600 crore in all.
* The State-owned bank has set a target to recover nearly Rs.20,000 crore of bad loans in the first half of this fiscal. This reflects the bank’s strong strategic decisions to clear most of its bad loans.
* Based on the findings of the Department of Financial Services, the bank has been ranked ‘No. 1’ Public Sector Undertaking bank in digital transactions in India. This reflects the bank is ready for the future with newer technologies.
Will Punjab National Bank Generate any Kind of Growth in the Future?
Prospects of a company or a bank is intrinsic for an investor before buying its shares as an investor will look for growth in their portfolio. Despite value investors who could argue that its the intrinsic value relative to the price which matters the most, a more positive analysis would be high growth at a lower cost.
With PNB expected to more than double its profits in the next couple of years, the prospect of investing in PNB stocks seems bright on a long-term basis. Even as the bank has earmarked more than Rs.20,000 crore towards clearing bad loans, it seems to be on track for better performance over the course of the next two years.
What Does This Mean to the Bank Investor?
This might not be the right time to invest in PNB stocks, given that its shares are trading nearly at its fair value; however, the positive outlook is heartening, which means digging deeper into other elements such as the balance sheet of the PSU bank. So that investors can take advantage of the next drop in share prices of PNB.
Also, with the bank’s stock leaving its worst behind in terms of bad loans long-term investors, if they’re willing to wait for a couple of years, the PNB stock could be the best bet. With provisions to take care of the Nirav Modi fraud case almost completed, the Non-Performing Assets (NPAs) could improve coupled with the asset stake sale in PNB Housing Finance and PNB Metlife, the State-run PNB’s future looks promising.
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