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PNB Stock Under Pressure: Citi Lowers Profit Outlook
20 Jan
Summary
- Citi maintains a sell rating on Punjab National Bank with a ₹115 target.
- Net interest margins fell below expectations, impacting profitability.
- Concerns persist over the sustainability of a 1% RoA target for FY26.
Citi maintains a sell recommendation for Punjab National Bank, with a target price of ₹115 per share. This stance is driven by concerns over declining net interest margins (NIMs) and a less optimistic profitability forecast. The bank's management has revised its FY26 NIM guidance downward to 2.6%, reflecting challenges in maintaining spreads amidst competitive deposit pricing and asset mix pressures.
While the reported return on assets (RoA) appears stable, Citi points out that this was bolstered by treasury gains and recoveries, rather than fundamental improvements in core operations. The credit cost for the quarter was 39 basis points, partly due to floating provisions, which provided a cushion to earnings.
Despite management's confidence in achieving a 1% RoA in FY26, Citi expresses caution regarding the quality and longevity of this performance. The brokerage suggests that ongoing margin pressures, coupled with reliance on non-core income, could hinder earnings consistency, thus limiting the stock's upside potential at current trading levels.
