Punjab National Bank (PNB) Share Price Target at Rs 130: Motilal Oswal Research
Motilal Oswal Financial Services has reiterated a BUY recommendation on Punjab National Bank (PNB), setting a 12-month target price of Rs130—a projected 19% upside from the current market price of Rs108. After a tumultuous quarter marked by shifting tax regimes, subdued earnings, and margin compression, PNB stands at a strategic inflection point.
PNB: Public Sector Bank with Strong Potential
Punjab National Bank, India’s second-largest public bank, recently reported results signifying near-term earnings turbulence but a promising strategic rerating ahead. Despite a 48% year-on-year drop in net profit for 1QFY26—primarily due to a hefty one-time tax charge—asset quality continued to improve, and management has provided robust growth guidance. The transition to the new tax regime is a transient headwind that, according to Motilal Oswal, will ultimately strengthen PNB’s recurring profitability from the second quarter onwards. The bank’s evolving loan book, improving margin outlook, aggressive cost control, and management’s confidence in driving asset quality underpin the BUY call and >15% expected return.
Motilal Oswal's Call: BUY with Raised Conviction
Motilal Oswal Financial Services maintains its BUY rating on Punjab National Bank, citing undervalued multiples and strong forward estimates:
Target price set at Rs130 per share, indicating a 19% appreciation over the next year.
Conviction stems from a blend of healthy loan growth projections, anticipated margin recovery, and resilience in asset quality.
Quarter at a Glance: Short-Term Pains, Long-Term Gains
PNB’s Q1FY26 was impacted by a one-off tax adjustment, but analyst projections remain constructive on underlying trends:
Net profit (PAT) for the quarter fell sharply to Rs16.7 billion, a 48% annual decline, missing estimates due to a Rs33.24 billion one-time tax outgo linked to the new tax regime.
Adjusted profit, however, calculated at Rs49.9 billion, marked a robust 54% YoY growth, highlighting strength in core operations after adjusting for tax effects.
Margin contraction continued with Net Interest Margin (NIM) slipping 11 basis points quarter-on-quarter to 2.7%, largely reflecting deposit cost pressures and policy interventions.
Balance Sheet Dynamics: Modest Growth, Quality on the Mend
Credit growth remained modest but structurally sound, while deposits outpaced guidance:
Loans clocked an 11% YoY expansion to Rs10.9 trillion, with MSME advances leading at 18.6% YoY growth.
Deposits increased 12.9% YoY to Rs15.9 trillion, reinforcing confidence in liability franchise strength.
CASA (Current and Savings Account) ratio declined to 37%, continuing a secular downtrend but is being targeted via new retail initiatives and bundled offerings.
Asset quality continues to heal:
Gross NPA improved to 3.78% (down 17 bp QoQ); Net NPA stood at 0.38%.
Provision coverage ratio (PCR) enhanced to a robust 90.3%.
Slippages remained under check, with the slippage ratio falling to 0.82% versus 1.36% in the preceding quarter.
Management expects further improvements, guiding for a Gross NPA ratio below 3% and Net NPA near 0.35% by year-end.
Operational Performance: Strong Fee Income, Controlled Costs
Resilience in core banking operations despite market headwinds:
Net Interest Income (NII) was stable at Rs105.8 billion (flat YoY and down 1.7% QoQ).
Non-interest income, led by trading and treasury gains, soared 46% YoY to Rs52.7 billion.
Operating expenses saw a 17% YoY spike to Rs87.6 billion, attributable to increased PSLC (Priority Sector Lending Certificates) purchases, but management signals these costs will plateau going forward.
Cost-to-income ratio moderated to 55.3%—a sequential improvement.
Metric | Q1FY25 | Q4FY25 | Q1FY26 | YoY Change (%) | QoQ Change (%) |
---|---|---|---|---|---|
Net Interest Income (Rs bn) | 104.8 | 107.6 | 105.8 | 1 | -2 |
Other Income (Rs bn) | 36.1 | 47.2 | 52.7 | 46 | 12 |
Operating Profit (Rs bn) | 65.8 | 67.8 | 70.8 | 8 | 5 |
Net Profit (Rs bn) | 32.5 | 45.7 | 16.8 | -48 | -63 |
GNPA (%) | 5.0 | 4.0 | 3.8 | -120 bp | -17 bp |
Tax Regime Transition: Short-Term Hit, Long-Term Profit Builder
The move to the new tax regime was a calculated step, set to reduce effective tax rates and enhance recurring profits:
One-time tax impact hit Q1 earnings but will moderate the effective tax rate to around 25% from Q2 onward.
The transition is guided to save approximately Rs7 billion per quarter, adding Rs21 billion to full-year FY26 bottom line.
Management expects RoA to improve by about 16 basis points as a direct result of this tax strategy.
Forward Guidance: Steady Growth, Expanding Margins, Valuation Upside
Management remains confident about the pace of recovery and growth:
Loan growth, led by the RAM (Retail, Agri, MSME) segment, is expected at 11-12% for FY26.
NIM expected to rebound toward the 2.8–2.9% range as repricing of deposits and falling funding costs take effect from Q3.
Cost control remains a priority, with quarterly operating expenses guided to stabilize at Rs80–82 billion.
Credit cost is targeted below 0.5% for FY26, further supporting profitability.
Slippage ratio will remain contained at less than 1%, underpinning sustained asset quality.
Valuations: Inexpensive Multiples and Room for Rerating
PNB trades at compelling valuation metrics despite structural improvements:
P/E (FY27E): 5.9x; P/B (FY27E): 0.8x; Price-to-Adjusted Book Value: 0.9x.
RoA/RoE estimates for FY27 stand at 1.0% and 15.2%, respectively.
The target price of Rs130 is based on 1.0x FY27E Adjusted Book Value, signaling substantial rerating potential if projected financial targets are met.
Investor Takeaway: Why Motilal Oswal’s BUY Stance Commands Attention
PNB’s recent earnings dip is more reflection of transient tax regime adjustments than operational deterioration. With asset quality on an improving trajectory, robust deposit mobilization, strengthening income diversification, and management’s proactive growth guidance, PNB offers a strong risk-reward for medium-term investors. Motilal Oswal’s reiteration of a BUY call, backed by detailed forecasts and valuation arguments, positions PNB as one of the top picks in India’s public banking sector for FY26 and beyond.
Stock Levels and Target for Investors:
Current Market Price: Rs108
12-Month Target Price: Rs130
Recommended Action: BUY
Expected Return: 19% upside