PNB share price cracks whopping 13%; value buy or dud investment?

Punjab National Bank (PNB) share price tanked over 13 per cent to hit its 52-week low of Rs 74.30 after the public sector bank posted largest ever quarterly loss of Rs 13,416.91 crore for the January-March period of financial year 2018. The stock slipped as much as 13.6 per cent to Rs 74.30 on the BSE. On Tuesday, the stock went down by 3.80 per cent to end at Rs 86 on BSE. 

Brokerage Edelweiss Securities said PNB's Q4 FY18 earnings were 'as bad as it could get'. It believes governance issues, operational challenges, uncertain business prospects and diluted franchise (CET-1 <6 per cent, net NPLs >11 per cent, domestic NIMs 2.4 per cent) makes it a dud investment proposition. 

The brokerage downgraded the stock to ’REDUCE’ with a revised target price of Rs 70. The stock may witness short term spikes on news of capital infusion, stake sale or cheap valuation support, but Edelweiss suggested staying away from PNB due to structural issues. 

"We believe challenges and uncertainties far outweigh the bank's liability franchise, undemanding valuation and subsidiaries performance. Also, post FY18 performance, PNB runs the risk of coming under the PCA framework. We believe limited visibility in any structural driver makes it an unpredictable investment story. Hence, we downgrade to ’REDUCE/SU’ from ’BUY/SP’ (cut ABV by >45 per cent). At CMP, stock trades at 1.2x ABV," it said in a results review report.

However, brokerage Kotak Securities maintained 'ADD' rating on the stock but revised down target price to Rs 90 from Rs 150 earlier. 

"PNB reported a very high loss which eroded nearly 30 per cent of its net worth on account of fraud and provisions for bad loans. The bank has provided 50 per cent for this transaction. Its Tier-1 ratio has slipped below 6 per cent and we see significant dilution of book value per share which drives our steep cut in target price," said Kotak Securities.  

"Stock price recovery is contingent on recovery on the balance of NPLs but near-term performance is likely to remain muted till the capital position is addressed," Kotak added.

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PNB witnessed deterioration in gross net performing assets (NPAs) or bad loans, which rose to 18.38 per cent of gross advances at the end of March this year, as against 12.53 per cent a year ago. Net NPAs also soared to 11.24 per cent against 7.81 per cent year ago.

In absolute term, the gross NPA of the bank surged to Rs 86,620 crore in the fourth quarter as compared to Rs 55,370 crore in same quarter a year ago. Similarly, the net NPA also rose to Rs 48,684.29 crore from Rs 32,702 crore at the end of March 2017.

As a result, provisions for the bad loans jumped four-fold to Rs 16,202.82 crore for the quarter under review compared to Rs 4,910.39 crore parked aside in the same period a year ago.