A woman looks on as CBI team seals Punjab National Bank’s South Mumbai branch at Brady House in Mumbai on Monday. (Source: PTI)

Brokerages Downgrade PNB After Largest-Ever Quarterly Loss

Most brokerages have turned bearish on fraud-hit Punjab National Bank after it posted largest ever quarterly loss by an Indian lender.

The state-run lender reported a loss of Rs 13,420 crore in the quarter ended March 31, compared with Rs 3,840 crore loss predicted in a Bloomberg survey and a Rs 2,620 crore profit earlier. Provisions soared 254 percent to Rs 20,350 crore.

Besides downgrading the stock, analysts cut their target price by as much as 50 percent citing a 200-basis point drop in capital adequacy ratio, below the regulatory requirement.

Japanese brokerage firm Nomura said the fourth quarter loss and next year’s loss estimate could lead to a spiral of capital-raising at low multiples. “Capital need at low prices is the key negative catalyst for PNB.”

Also Read: Q4 Results: Fraud-Hit PNB Reports Rs 13,417 Crore Loss 

Here are key highlights from brokerage notes on PNB:

Credit Suisse

  • Capital depletion will lead to loan book contraction.
  • Could incur losses even in FY19 on residual fraud provisions.
  • PNB will likely need a Balance Sheet contraction to conserve capital.

Edelweiss

  • Governance issues, operational challenges, uncertain business prospects and diluted franchise makes it a dud investment proposition.
  • We do run the risk of short term spikes in the stock on news of capital infusion, stake sale or cheap valuation support.
  • Prefer to stay away due to structural issues.

Jefferies

  • The lender is in need of an urgent bailout.
  • PNB may also be restricted to conduct normal business.
  • It will likely face significant operational challenges in the near term.

Motilal Oswal

  • A sharp rise in stressed assets, a steep decline in CET-1 ratio and impending provisions to remain an overhang over FY19.
  • Reduce FY20E PAT by 44 percent and value the bank at 0.6 times March 2020 estimate book value.

Also Read: Nirav Modi Case: Finance Ministry Asks Allahabad Bank CEO, PNB EDs To Be Divested Of All Powers

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