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Revenue & PPOP in line; controlled LLP fuels earnings beat The asset quality ratio improves further

* Punjab National Bank (PNB) reported a 1QFY27 PAT of INR52.5b (up 214% YoY/1% QoQ; 9% beat), fueled by lower provisioning.

* NII grew 2.1% YoY (up 4% QoQ) to INR108b (in line), driven by a 3bp QoQ NIM improvement to 2.5%.

* Other income declined 17.7% YoY/up 4.1% QoQ to INR43.3b (in line) amid lower treasury gains, while fee income growth was healthy (up 19.6% QoQ). Total revenue thus declined 4.5% YoY/up 4.1% QoQ to INR151.3b.

* Loan book grew 13.7% YoY (1.3% QoQ), while deposits grew 8.5% YoY (+0.8% QoQ). The CD ratio increased to 72% from 71.6% in 4QFY26.

* Slippages declined to INR20.8b from INR27.6b in 4QFY26 (up 10.3% YoY). GNPA/NNPA ratios declined by 17bp/1bp QoQ to 2.78%/0.28%. The PCR ratio remained stable at 90.3% during the quarter.

* We tweak our earnings estimates by +8.5%/+4.0% for FY27/FY28 and project an FY27E RoA/RoE of 1.06%/15.4%. Reiterate BUY with a TP of INR135 (premised on 0.9x FY28E ABV).

C/I ratio likely to improve to ~48%; RoA guided at >1%

* PNB reported a PAT of INR52.5b (up 214% YoY/1% QoQ, 9% beat) amid lower provisions, while NII was in line.

* NII grew 2.1% YoY/4% QoQ, as NIMs increased by 3bp QoQ to 2.5%. The NIMs expansion was largely led by a decline in the cost of funds (down 8bp QoQ to 4.36%), led by FCNR (b) mobilization and deposit repricing, while yield on advances improved 2bp QoQ to 7.53% with a focus on moving to higher-yielding assets.

* Other income dipped 17.7% YoY/rose 4.1% QoQ to INR43.3b amid lower treasury income, while fee income was robust with increased pricing power.

* Opex declined 13.1% YoY/grew 8.1% QoQ to INR76.1b (in line) amid a spike in bond yields (lowering AS-15 provisions to INR4.9b) and a dip in PSLC costs. The C/I ratio thus declined 500bp YoY/rose 188bp QoQ to 50.3%.

* PPoP largely stood flat QoQ (up 6.2% YoY; in line). Provisions rose 27.7% QoQ, led by additional floating provisions of INR3.9b, eventually to support the ECL transition. The bank expects the ECL transition to be largely manageable and sustains its RoA of 1% despite the implementation of ECL.

* The loan book grew 13.7% YoY (1.3% QoQ) to INR12.4t amid slower growth in corporate (-0.4% QoQ), while agri (-0.2% QoQ) and MSME loans (+4.1% QoQ) reported healthy growth. Retail (incl. IBPC) grew 9% YoY/1.8% QoQ.

* Deposits grew 8.5% YoY/0.8% QoQ to INR17.25t. The CASA ratio declined to 36.7% (down 30bp QoQ). The CD ratio thus increased to 72%.

* On the asset quality front, slippages declined 24.6% QoQ to INR20.8b (up 10.3% YoY). The GNPA/NNPA ratios thus declined 17bp/1bp QoQ to 2.78%/0.28%, while the PCR ratio was stable at 90.3%. SMA-2 (above INR50m) increased to 0.12% of loans vs. 0.04% in 4QFY26.

Valuation and view: Reiterate BUY with a TP of INR135

PNB reported a mixed quarter, with earnings beat led by controlled provisions and opex, while margins improved 3bp QoQ. Provisions came in lower, reflecting strong asset quality, while opex was lower due to fewer AS-15 provisions and a decline in PSLC costs. Business growth remained modest, and management guided for loan growth of ~12-13% in FY27. Asset quality trends were healthy, with slippages showing a dip with no significant stress. PNB guided an RoA of >1% for FY27, while credit costs are guided at <0.4%. We estimate an FY27 RoA/RoE of 1.06%/15.4%. We reiterate our BUY rating with a TP of INR135 (based on 0.9x FY28E ABV).

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