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.”
Here are key highlights from brokerage notes on PNB:
- 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.
- 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.
- 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.
- 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.