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PNB continued to report a strong beat on PAT at Rs22bn (Emkay est.: Rs19.2bn) mainly due to contained staff cost despite wage hike provision and lower provisions due to reversal of NPI provisions on one lumpy corporate. Amid margin pressure across banks, PNB once again reported a 4bps QoQ margin expansion to 3.15% due to better LDR and interest recognition on lumpy NPA recoveries. Asset quality continued to improve, with fresh slippage run-rate now at a decadal low of 0.9% and NNPA at ~1% of loans, which should lead to a sharp reduction in LLP. The bank still operates on the old-tax regime and migration to the new regime could boost profitability. Factoring in a better margin trajectory and asset-quality improvement and migration to the new tax regime over FY25-26, we raise our FY24E/FY25/FY26E earnings estimates by 15-40% and expect the bank to deliver 0.5-1% RoA/8-14% RoE. Thus, we revise our TP to Rs125/share (vs. Rs78), based on 1x its Dec-25E ABV and subsidiary’s value at Rs11/share. We upgrade the stock to BUY from Reduce.

Margins continue to ascend amid pressure seen across other banks

Credit growth remained healthy at 14.5% YoY/3% QoQ with continued focus on the RAM segment (which constitutes 56% of the total net advances), while deposit growth remained consciously low at 9% YoY/1% QoQ, leading to steady improvement in LDR to 69%. This coupled with interest recognition on recovered NPAs led to a 4bps QoQ increase in NIM to 3.15%, amid most other banks experiencing margin pressure. Going forward, the bank plans to further expand its LDR, which we believe should continue to support margins for the bank in the near-medium term.

Slippages at a decadal low and so also NNPA at ~1%

Fresh slippages continued to decelerate at Rs17.9bn/0.9% of loans, which coupled with higher recovery/write-offs, led to a 72bps QoQ dip in the GNPA ratio to 6.2%. Specific PCR further improved to 85%, which led to a 51bps reduction in NNPA to a decadal low of ~1%. The restructured pool also stands reduced to 1% of loans, which is relatively lower vs. some other PSBs. The bank recovered NPAs worth ~Rs29bn from NCLT during 9MFY24 and expects further recoveries of Rs12bn in Q4FY24. According to management’s guidance, the bank is expected to reach exit RoA of 1% by 4QFY25, led by strong NII/other income and lower LLP.

Upgrade to BUY

Factoring in better margin trajectory, asset-quality improvement, and migration to the new tax regime in FY26, we raise our FY24E/FY25/FY26E earnings estimates by 15-40% and expect PNB to post 0.5-1% RoA/8-14% RoE. Thus, we revise our TP to Rs125/share (vs. Rs78), based on 1x its Dec-25E ABV and the subsidiary’s value at Rs11/share. We upgrade the stock to BUY from Reduce. With CET-1 at 10.6%, including 9MFY24 profit, the bank plans to raise capital worth Rs70bn via QIP, which we have built into our FY25 estimates. Key risks: Macro deterioration derailing growth/asset-quality normalization.

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