Target: ₹120
CMP: ₹105.40
Punjab National Bank (PNB) posted Q1FY26 PAT of ₹1,675 crore and adjusted for a one-time impact owing to shifting to a lower tax regime (about ₹3,300 crore), adjusted net income was ₹4,900 crore (about 1 per cent annualised RoA). Strong non-core income as well as a lower provision (27 bps vs. our estimate of 42 bps) drove the net income beat.
We believe PNB has strong balance sheet, few levers to partly offset margin compression (lower tax rate), and optionality from non-core pools. This includes written-off income (w/off pool is 8 per cent vs. 4-6 per cent of peers) and the available-for-sale book stands at 6 per cent of assets (vs. 3-4 per cent of peers). We expect RoA to moderate to 0.7/0.8 per cent in FY26F/27F, respectively, from 1 per cent in FY25F. RoE to dip to 11-12 per cent in FY26-27F, from 14 per cent in FY25. The risk-reward ratio appears attractive, with PNB trading at 0.75x FY27F BV.
We maintain Add rating on PNB and increase our target price on it to ₹120 (₹111 earlier). This adjustment reflects marginally-higher, sustainable RoE expectation following lower-than-expected credit cost outcome.
Downside risks: Lower than-expected loan/deposit growth, higher delinquencies in retail/MSME portfolios and higher-than-expected growth in costs.
Published on July 31, 2025
