Some analysts turned positive on PNB over the past six-eight months, because of its marginally improving fundamentals.
After posting negligible improvement in its core operating income
at Rs 19,082 crore in FY17, operations were back on track in the June quarter, with a 10 per cent year-on-year (y-o-y) growth.
Even on the provisioning front, things seemed to ease for the bank. Advances, led by retail loans, brought in much of the growth.
According to analysts at Kotak Institutional Equities, PNB is likely to report net interest income growth
of 11.5 per cent at Rs 16,715 crore, while net profits may expand 86 per cent y-o-y to Rs 2,460 crore in FY18. All these could restore investors’ confidence in the stock.
Until Wednesday’s rally, the stock was trading at a benign valuation (0.9 times its FY18 price-to-book), making it an attractive candidate among the PSBs.
However, even as fundamentals are improving after two years of bad spell, mere expectations or low valuations aren’t adequate to support the rally. There are still some pockets of concern. With the gross non-performing assets (NPA) ratio was 13.7 per cent as of June 30, 2017, and net NPA
ratio was 8.7 per cent, PNB’s asset quality is far from comforting.
While provisioning costs might have stabilised, the provision coverage ratio is still at a dismal 40 per cent, indicating at least six-eight quarters of clean-up. Besides, there is a see-sawing nature of loan recovery that could get aggravated as more accounts are referred to Insolvency
Analysts at Prabhudas Lilladher estimate an incremental provisioning of about Rs 1,000 crore towards such accounts in the coming quarters.
Thus, considering the uncertainties, sustainability of the current rally is anybody’s guess. Quarterly results due out in a few days would be the best judge of this.