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Buy Punjab National Bank, target of Rs 750: KRChoksey

This article was posted on Jun 8, 2009 and is filed under Stock Views

KRChoksey has maintained its buy rating on Punjab National Bank, PNB with price target of Rs 750, in its report.

“PNB reported strong Net Profit of Rs 865.6 crores, up 59.2% y-o-y but down 13.4% q-o-q on back of better operational performance and strong growth in non interest income. At current price of Rs 661 the stock is trading at 1.2x FY10E P/BV.”

“We maintain a buy on PNB with a target of Rs 750, giving an upside potential of 14% from the current levels, due to 1) continued credit growth of 20 – 22% as the new government prods banks to increase lending and economy improves; 2) stable margins at 3.5% levels as bulk deposits are repriced and bank stops sub- PLR loans; 3) asset quality continues to be strong with Gross and Net NPLs decreasing sequentially; 4) asset quality headwinds will subside with improving macro fundamentals, low proportion of pending restructuring applications (Rs 800 crores or .4%) and strong NPA recoveries; 5) Impressive coverage ratio (90.4%) will buffer future earnings from loan losses; 6) restructuring of subs (merging PNB Gilts with itself and stake sale of PNB Housing) will be positive; 7) continued strong RoE (22 – 24% for FY10E). Key Risks to our estimates are 1) losses on bond portfolio from rising yields; 2) slower credit growth due to weaker than anticipated economic recovery,” says KRChoksey’s report.

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