Emkay Global Financial Services, a domestic brokerage firm, trimmed the target price on Punjab National Bank by 10%, to Rs 135 from Rs 150. However, it maintained a ‘Buy’ rating on the stock. Shrinking margins, declining treasury performance, and other factors led the brokerage to cut the target price.
Continued contraction in margins
Punjab National Bank reported an earnings miss primarily due to a 5 basis points decline in Net Interest Margins (NIM) to 2.47%. This compression was driven by the full-quarter impact of a rate cut in December and deposit pricing that remained “sticky”.
Weak treasury performance
Earnings were further dragged down by lower treasury gains. Treasury income remained subdued because of rising bond yields, which negatively impacted valuations.
Moderate credit and retail growth
The bank’s credit growth is considered moderate at 13.7% YoY. Specifically, retail growth slowed to 9% YoY, which contributed to the overall margin pressure. Moderating retail growth, along with the full-quarter impact of the December rate cut and sticky deposit pricing, led to a 5 bps decline in NIM to 2.47%.
“PNB reported healthy credit growth of 13.7% YoY and 2.4% QoQ, driven by the low-yielding overseas corporate book and MSME segments, while retail growth remained moderate at 9% YoY,” said Emkay Global.
Downwards revision of earnings estimates
Due to the combination of moderate growth, margin slippage, and treasury pressure, Emkay trimmed its earnings estimates for the bank by 5–7% for the upcoming fiscal years.
Future regulatory and asset risks
The target price revision factors in key risks, including asset-quality normalisation and the upcoming Expected Credit Loss (ECL) implementation scheduled for April 1, 2027, which may require further provisioning.
However, the lender aims to rebalance its loan mix by reducing corporate share, from 46–47% to 42% in the near term, while increasing RAM (Retail, Agri, MSME) to 58% in FY27 and to 60% in the long term. This is likely to support NIM, which is otherwise an irritant, said the brokerage house.
Punjab National Bank share price performance
The share price of Punjab National Bank has risen 0.87% in the last five trading days. The stock has given a return of 5.5% in the past one month and has fallen 9.9% in the last six months. Punjab National Bank’s stock price surged 17% over the previous one year.