Punjab National Bank (PNB) has become the third Indian lender to cross the Rs 1-lakh-crore market value mark, joining State Bank of India and Bank of Baroda. This significant milestone comes after its shares surged over 60% so far this year.
The stock hit a high of Rs 91.81 on Friday, pushing its market capitalization past Rs 1.01 lakh crore. At the time of writing, the stock is trading at Rs 90.8, up 1% from its previous close.
Several factors have contributed to PNB’s remarkable performance:
- Sustained rally in PSU stocks: There has been a general upward trend in the prices of public sector firms, including banks. Analysts attribute this to improved financial performance and undervalued valuations compared to private banks.
- Improved balance sheet and asset quality: PNB has strengthened its balance sheet through lower slippage ratios and reduced credit costs. The bank’s gross non-performing assets (GNPA) have declined from 10.48% to 6.96% in the July-September quarter, and its net non-performing assets (NNPA) have fallen from 3.80% to 1.47%.
- Strong financial results: PNB reported a 327% increase in net profit for the July-September quarter to Rs 1,756 crore. The bank is also aiming to further reduce its credit cost to 1.5-1.75% in FY24.
- Healthy loan growth and stable margins: PNB is expected to continue its strong loan growth trajectory, supported by a healthy economy and increased demand for credit. The bank’s margins are also expected to remain stable.
- Improved return metrics: PNB’s improving growth and recoveries from stressed assets are contributing to better return metrics and lower credit costs for new lending. This is expected to sustain the bank’s earnings momentum.
Analysts believe that PNB is well-positioned to deliver further growth in the coming years. Sharekhan, a brokerage firm, expects the bank’s RoA and RoE to reach 0.9% and 12% by FY25.
Are PSU Banks Undervalued?
Sridhar Sivaram from Enam Holdings believes that PSU stocks, including PNB, remain undervalued despite their recent gains. He highlights the significant positive changes in the business models of government-owned companies, which have led to improved financial performance and governance.
Sivaram points out that PSU stocks have outperformed the market, with a 50% CAGR in the last three years. Even after their recent surge, some PSU banks still trade at low P/E ratios of 5 to 6. Sivaram suggests that these stocks could double and still be reasonably priced.
The BSE PSU index has surged 43% this year and currently has a P/E ratio of 9.12. Improved governance and business models have reduced the pressure on PSU firms to focus solely on profits, making them more attractive to investors.
Conclusion
Punjab National Bank’s crossing the Rs 1-lakh-crore market value mark is a significant milestone that indicates the revival of the PSU banking sector. Improved financial performance, undervalued valuations, and positive changes in business models make PSU banks an attractive investment proposition. However, it is important to conduct thorough research and consult with a financial advisor before making any investment decisions.
