PNB falls 4% on reporting huge loss in Q4; Morgan Stanley remains bearish

Morgan Stanley prefers large corporate lenders (over PNB) where it sees much better risk-reward

Public sector lender Punjab National Bank shares fell 3.7 percent intraday on May 29 after it reported a big loss in the quarter ended March 2019.


Hence, global brokerage house Morgan Stanley retained underweight call on the stock with a target price of Rs 75, implying a 13 percent downside from current levels.

The stock was quoting at Rs 83.70, down Rs 2.50, or 2.90 percent on the BSE, at 1119 hours IST.

The brokerage said balance sheet is weak given CET-I ratio at just 6.2 percent. "Pre-provisioning operating profit (PPoP) is weak and any improvement will be gradual, it said, adding core PPoP is 14 percent below its estimate owing to lower margin/fees.

Therefore, Morgan Stanley prefers large corporate lenders where it sees much better risk-reward.

The March quarter loss at Rs 4,700 crore was led by higher provisions and weak PPP, against loss of Rs 13,417 crore in the corresponding period last fiscal due to Neerav Modi-led alleged fraud.

Provisions for bad loans halved to Rs 10,071 crore in the March quarter compared to Rs 20,353.1 crore in the same period last fiscal but increased sharply compared to Rs 2,754 crore reported in December quarter.

Slippages increased sequentially to Rs 7,300 crore in Q4, which are far higher than Morgan Stanley's expectation of Rs 4,000 crore.

Gross non-performing assets as a percentage of gross advances improved to 15.5 percent (Rs 78,473 crore) against 16.33 percent (Rs 77,733 crore) in the previous quarter given strong sequential loan growth.

Likewise, the net NPAs as a percentage of net advances also dropped to 6.56 percent (Rs 30,038 crore) against 8.22 percent (Rs 35,675 crore) sequentially.

The bank improved its provision coverage ratio to 74.5 percent in March quarter against 68.9 percent in the December quarter but net interest margin contracted sequentially to 2.45 percent against 2.64 percent.

Net interest income during the quarter fell by 37.15 percent YoY to Rs 4,200.3 crore in the quarter ended March 2019 with loan growth at 5.7 percent YoY.

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