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Earnings traction remains healthy

Asset quality continues to improve; guides 1% RoA by end-FY25

* Punjab National Bank (PNB) reported a 4QFY24 PAT of INR30.1b (5% beat), led by controlled provisions and robust other income. Opex was elevated and led to a 10% miss on PPoP.

* NII grew 9% YoY to INR104b (in line), while NIM contracted 5bp QoQ to 3.1% (3.25% domestic).

* Loan book grew 12% YoY (2% QoQ) to INR9.3t, led by a healthy traction in retail loans (3.9% QoQ growth). The C/D ratio remained low at 68%, thus generating a lever to accelerate advances, unlike other banks. The CASA ratio moderated 103bp QoQ to 41.4% during the quarter.

* Slippages increased marginally to INR22b (1.1% annualized), while healthy recovery and upgrades enabled an overall decline in GNPA/NNPA ratios to 5.73%/0.73%. PCR improved 254bp QoQ to 88% in 4QFY24.

* We raise our EPS estimates by 7%/5% for FY25/FY26, factoring in lower provisions, healthy other income, and steady margins. We estimate an RoA/ RoE of 0.8%/12.8% in FY25 and 1.0%/14.5% in FY26. Reiterate Neutral with a revised TP of INR130 (premised on 1.1x FY26E ABV).

C/D ratio moderates to 68%, PCR improves further to 88%

* PNB reported a PAT of INR30.1b (+160% YoY, 5% beat) amid lower provisions (59% YoY decline, 44% lower than MOFSLe). NII grew 9% YoY (1% QoQ), while NIMs declined marginally by 5bp QoQ to 3.1%.

* Other income jumped 24% YoY (up 59% QoQ, 20% beat) to INR42.5b, supported by both healthy fee income and treasury gains of INR8.6b in 4QFY24 (vs. a loss of INR7.9b in 3QFY24).

* Opex increased 16% YoY (19% higher than MOFSLe) as PNB allocated for AS15 wage-related provisions. As a result, the C/I ratio inched up to 56% (vs. 52% in 3Q). PPoP, thus, grew 9% YoY to INR64.1b (10% miss on MOFSLe) in 4Q. PNB guides a normalized run-rate of INR35-36b of wage expenses going forward, while other opex growth is likely to increase by 5-7%.

* Loan book grew by a healthy 12.5% YoY (2% QoQ) to INR9.3t, amid healthy traction in Retail, and Agri and a relatively slower growth in Corporate. However, MSME saw a decline. Retail growth has been healthy at 3.9% QoQ. PNB guided for a healthy traction in RAM, targeting its share at 60% (vs. 55% in 4Q).

* Deposits grew faster than advances at 7% YoY (3.5% QoQ) to INR13.7t, led by healthy traction in TDs as well as international deposits at 23% YoY/6.2% QoQ. The CASA ratio thus moderated to 41.4% from 42.5% in 3QFY24.

* On the asset quality front, slippages increased 23% QoQ to INR22b (1.1% annualized). GNPA/NNPA improved 51bp/23bp QoQ to 5.73%/0.7%. PCR rose 254bp QoQ to 87.9%.

* SMA-2 (above INR50m) inched up by a modest 7% QoQ to INR14.3b and stood at 15bp of domestic loans.

Valuation and view:

Reiterate Neutral with a revised TP of INR130 PNB reported a mixed quarter as PAT beat was driven by a sharp decline in provisions, while PPoP missed our estimates due to higher opex. NII growth stood in line even as NIM contracted slightly. 4Q witnessed relatively slower growth, but management aims to improve its share in the RAM portfolio, which will support margins. Asset quality continues to see a sharp improvement as recoveries and woff continue to be healthy. PCR thus improved further to 88%, while asset quality ratios also improved. SMA overdue (with loans over INR50m) remains under control at 0.15% of domestic loans, while the bank continues to guide robust recoveries at 2x of slippages. PNB expects the credit cost and slippages to be contained at <1% and projects RoA at 1% by 4QFY25. We raise our EPS estimates by 7%/5% for FY25/FY26, factoring in lower provisions, healthy other income, and steady margins. We estimate an RoA/ RoE of 0.8%/12.8% in FY25 and 1.0%/14.5% in FY26. Reiterate Neutral with a revised TP of INR130 (premised on 1.1x FY26E ABV).

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