PNB joins the Rs. 1L crore market cap league
Punjab National Bank (PNB) joined the ranks of State Bank of India and Bank of Baroda as the third Indian lender to surpass a market cap of Rs. 1 lakh crore. This achievement comes after a 60% increase in PNB's shares this year, with the stock price reaching a high of Rs. 92 apiece on December 15. Analysts attribute this surge to a sustained rally in public sector firms, noting that PSU banks are undervalued compared to their private counterparts.
Factors behind PNB's stock surge
PNB's impressive performance is due in part to stronger balance sheets and improved asset quality, achieved through lower slippage ratios and reduced credit costs. The bank reported a staggering 327% rise in net profit at Rs. 1,756 crore for the July-September quarter, while its gross non-performing assets (GNPA) dropped from 10.48% to 6.96%. PNB aims to further improve by enforcing stricter underwriting on new loans and enhancing collection efficiency, targeting a quarterly credit cost reduction of 1.5-1.75% in FY24.
PNB's growth strategy and analysts' outlook
Per analysts, PNB's growth and recoveries from older stressed assets are expected to maintain earnings momentum. Sharekhan recently stated, "We expect RoA/RoE to be at 0.9/12% in FY25," adding that healthy loan growth, stable margins, and lower opex growth will contribute to strong pre-provision operating profit (PPoP) growth. Enam Holdings' Sridhar Sivaram also expressed optimism about PSUs in a CNBC-TV18 interview, noting that despite recent gains, PSU stocks remain undervalued and have undergone significant positive changes in their business models.
PSU stocks remain undervalued despite gains
Sivaram believes that the entire PSU sector, barring a few exceptions, is promising and deserving of attention. Some PSU bank stocks, despite a fourfold increase, still trade at low P/E ratios of 5 to 6. The BSE PSU index saw a 43% surge this year, with a P/E ratio of 9.12. Sivaram suggests that these stocks could even double in value and still be reasonably priced. Over the last three years, PSUs have shown impressive growth, recording a 50% CAGR
