PNB becomes 3rd state-run lender to cross Rs 1 lakh crore in market value

Analysts note that PSU banks are undervalued in comparison to private banks.

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The state-run Punjab National Bank became the third Indian lender to cross the Rs 1-lakh-crore market value after its shares surged over 60 percent so far this year.

The stock hit a high of Rs 91.81 with its market cap hitting over Rs 1.01 lakh crore. At 9.30am, the stock was trading at Rs 90.8 a share, up 1 percent from its previous close. Earlier, State Bank of India and Bank of Baroda had crossed this milestone.

The PNB stock surged due to a sustained rally in various public sector firms. Analysts note that PSU banks are undervalued in comparison to private banks. Banks have bolstered their balance sheets and enhanced asset quality, notably through low slippage ratios and reduced credit costs in public sector banks.

The lender reported 327 percent rise in net profit at Rs 1,756 crore for the July–September quarter of the current financial year. The public-sector lender’s gross non-performing assets (GNPA) declined to 6.96 percent from 10.48 percent in this period and the net non-performing assets (NNPA) fell to 1.47 percent from 3.80 percent.

Quarterly credit cost stands at 1.68 percent (-46bps QoQ) and the management aims to cut it down to 1.5-1.75 percent in FY24 by enforcing stricter underwriting on new loans and enhancing collection efficiency. PNB’s improving growth and recoveries from older stressed assets contribute to better return metrics, fostering lower credit costs for new lending. These factors are expected to sustain earnings momentum, analysts said.

“We believe the bank is likely to deliver higher growth as balance sheet strength improves further going ahead. Healthy loan growth, stable margins and lower opex growth is expected to lead strong PPoP growth. Overall, asset quality outlook remains stable to positive. Lower slippage formation and healthy recoveries are likely to boost the asset quality further and will help in faster normalisation of credit costs. Healthy PPoP growth and normalisation of credit costs should drive a strong improvement in return ratios in FY25. We expect RoA/RoE to be at 0.9/12 percent in FY25,” Sharekhan said in its recent note.

In a recent interview with CNBC-TV18, Sridhar Sivaram from Enam Holdings notes that despite recent gains, PSU stocks remain undervalued. He highlights significant positive changes in the business models of government-owned companies.

PSUs have outperformed, showing a 50 percent CAGR in the last three years. Some PSU banks, despite stock price quadrupling, still trade at low P/E ratios of 5 to 6. Sivaram suggests these stocks could double and still be reasonably priced.

The BSE PSU index surged 43 percent this year and holds a P/E ratio of 9.12. Improved governance and business models have reduced government pressure for profit focus in these firms. Sivaram finds the entire PSU sector promising, except for a few, and worthy of attention.

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