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Robust Quarter, asset quality improved

Punjab National Bank is a leading Indian public sector bank providing corporate and personal banking services. Currently, the bank has 10,159 branches and 12,040 ATMs.

* In Q2FY25, PNB’s standalone interest income rose 13.4% YoY to Rs. 29,875cr, fuelled by strong growth in interest on advances (+14.7% YoY), bank funds (+14.8% YoY) and investment income (+8.8% YoY).

* Interest expenses surged 17.8% YoY to Rs.19,358cr, primarily due to rise in the cost of deposits. As a result, net interest income (NII) grew 6.0% YoY to Rs. 10,517cr. However, the net interest margin (NIM) contracted by 19bps YoY to 2.9% during Q2FY25.

* Cost to income ratio increased to 54.6% (vs 52.0% in Q2FY24), largely attributed to elevated deposit costs. Moreover, staff cost to income ratio increased to 38.1% , due to creation of AS 15 wage related provisions.

* Profit after tax (PAT) soared 145.1% YoY to Rs. 4,303cr, driven by higher other income (+51.0% YoY) and substantial decrease in provisions (-91.6% YoY).

Valuation

PNB delivered a strong quarter, marked by significant asset quality improvements and a healthy loan book expansion. Going forward, the increasing share of retail, agriculture, and MSME segments in the loan portfolio is expected to sustain margins. Improving asset quality ratios, potential decline in cost-to income ratio, declining credit costs, and enhanced recoveries position expected to drive future growth. Additionally, the company plans to increase the proportion of RAM portfolio, enhancing overall profitability. Therefore, we upgrade our BUY rating on the stock, based on 0.9x FY26E BVPS, with a revised target price of Rs. 111.

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SEBI Registration Number: INH200000345