After PNB Q4 howler, global brokerages downgrade PNB; reduce target price up to Rs 70

May 16
19:57 2018

Shares of Punjab National Bank (PNB) touched 52-week low of Rs 76.10, ended more than 12 percent lower at Rs 75.55 from previous close on the back of weak numbers posted by the company for the quarter ended March 2018.

The company has reported a net loss of Rs 13,416.91 crore for the fourth quarter ending March 2018.

The profit was dragged by a three-fold surge in provisions towards bad loans, which was taken upfront during the quarter.

In the same quarter a year ago, the bank had turned around due to write-back in pension provisions to report a profit of Rs 261.9 crore as against a massive loss of Rs 5,367.1 crore in March-end quarter 2016.

Total hit to PNB on account of the Nirav Modi-scam is Rs 14,356.84 crore. This includes unauthorised letters of undertaking and domestic loan.

Due to high provisions, the capital adequacy ratio (CAR) dipped to 9.2 percent, below the minimum of 11.5 percent laid down by Basel-III norms.

The banks total net worth fell below the amount of non-performing loans.

As on March 31, the bank had net non-performing loans totaling over Rs 48,000 crore on its books, against a net worth of around Rs 41,000 crore.

The bank’s asset quality has worsened quite a bit over the past couple of years, forcing it to provide more and more for bad and doubtful loans.

Brokerage: Edelweiss | Rating: reduce | Target: Rs 70

Edelweiss has downgraded Punjab National Bank to reduce from buy rating and kept the target of Rs 70.

The broking house believe that challenges and uncertainties far outweigh the banks liability franchise, undemanding valuation and subsidiaries performance.

Also, post FY18 performance, PNB runs the risk of coming under the PCA framework.

Brokerage: Nomura | Rating: Reduce | Target: Rs 75

The research house Nomura has downgrade PNB to reduce and cut target price to Rs 75 from Rs 115.

The loss of Rs 134 billion and FY19F loss estimate of Rs 80 billion could lead to a spiral of capital-raising at low multiples, it added.

As CET-1 has dipped to <6% and estimate capital-raising of Rs 160 billion, could lead further 70% dilution.

Brokerage: Motilal Oswal | Rating: Neutral | Target: Rs 85

Motilal Oswal has downgraded the Punjab National Bank (PNB) to neutral from buy and also slashed target price to Rs 85 from Rs 160.

The broking house cut FY20E PAT by 44 percent and they valuing the bank at 0.6x Mar’20E BV.

Brokerage: Credit Suisse | Rating: Neutral | Target: Rs 88

Foreign broking firm Credit Suisse has downgraded PNB to neutral from outperform and also cut price target to Rs 88 from Rs 188 per share.

According to Credit Suisse the capital depletion will lead to loan book contraction.

The bank could incur losses even in FY19 on residual fraud provisions, it feels.

The bank will likely need a balance sheet contraction to conserve capital.

Brokerage: Jefferies | Rating: Hold| Target: Rs 80

Jefferies has maintained hold rating on PNB with a target of Rs 80 per share.

According to research house, bank need for a bailout from the government.

PNB will likely face significant operational challenges in the near term, it added.

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 125

Morgan Stanley has kept overweight call on PNB with a target of Rs 125 per share.

The company saw a big loss of USD 2 billion driven by high slippages (6.5% of loans) despite the bank classifying just 50% of fraud related loans as NPLs.

The company miss core PPoP which was driven by lower margins, weak fees & higher costs.

Punjab National Bank ended at Rs 75.55, down Rs 10.45, or 12.15 percent on the BSE.

Posted by Rakesh Patil

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