Why PNB Share Price is Rising

Public sector banks (PSBs) have been outperforming their private peers significantly in recent months.

If we look at their one year performance, the Nifty private bank index has gone up by around 7%, whereas the Nifty public sector bank (PSB) index has shot up over 38%.

Out of the 12 listed public sector banks, nine of them have offered more than 50% returns in the last one year.

The major contributors include Indian Overseas Bank with a massive 108.6% return and Punjab and Sind Bank with a 135% return.

Now, another PSB stock is coming into the limelight...yes, we are talking about Punjab National Bank (PNB).

In the past five trading sessions, the share price has rallied over 4%.

While in the past one year, the stock is up around 80%.

So, what's the reason behind this rally?

Let's find out.

#1 Strong Q2 Results

PNB delivered a stellar performance in the second quarter of FY24, witnessing a remarkable 327% YoY surge in net profit, soaring to Rs 17. 6 billion (bn).

This, compared to Rs 4.1 bn reported in the same quarter last financial year.

The operating income also experienced a 11.7% YoY increase, reaching Rs 62.2 bn.

The net interest income (NII), which is the difference between revenue generated from interest bearing assets and expenses incurred on interest bearing liabilities, surged by 18.2%, rising from Rs 82.7 bn to Rs 99.2 bn.

PNB showed a significant change in the asset quality as well, which was the key highlight. The gross non-performing asset (NPA) reduced from 10.48% in the September quarter of the previous year to 6.96% in the recent September quarter.

Similarly, net NPAs also came down by more than half from 3.8% to 1.47%.

If we look from a macro perspective, most of the PSU banks have witnessed improvements in the asset quality, strong credit growth, a robust balance sheet and are recording high profits.

A question arises: What is driving this shift? Let's find out...

#2 Structural Change

The days of PSBs struggling with hefty bad loans are now a thing of the past. These banks have undergone a structural transformation aimed at enhancing their overall financial health.

In 2022, Finance Minister Nirmala Sitharaman implemented a capital expenditure target that provided a significant boost to the loan books of these banks. This strategic move played a crucial role in improving their financial standing.

Additionally, there has been a focus on enhancing asset quality, particularly in reducing non-performing assets (NPAs) across all segments - corporate, retail, and small and medium-sized enterprises (SMEs).

This focused approach has led to notable improvements, contributing to healthier margins.

As a result, PSBs are now more robust than ever before, marking a positive turn in their financial landscape.

#3 Foreign Institutional Investors (FIIs) Increasing Stake

FIIs have continued to increase their stake for the second consecutive quarter, witnessing a notable increase of 83 basis points, bringing their holding to 2.65% as of the end of September 2023.

This spike in FII ownership may have sparked buying interest in the stock, potentially contributing to the uptrend observed in PNB share price.

Here's a detailed shareholding pattern of PNB.

What's Next?

PNB is making significant strides in expanding its digital base. The bank has seen a whopping 53% YoY growth in its digital transactions in the first half of the current financial year as compared to the previous financial year.

Moreover, 85% of transactions done by its customers were digital in the first half of the current financial year, showing a strong shift towards digital channels.

PNB has seen 10% YoY growth in internet banking users during the September quarter as compared to the same quarter last year.

It has also introduced several innovative digital initiatives, including cash withdrawal using the Unified Payments System (UPI), linking credit cards on the BHIM PNB app, and enabling the blocking or disabling of credit cards through WhatsApp.

So, it is clear that PNB is committed to staying at the forefront of technological advancements and there is a long way to go.

Furthermore, the management is keen on reducing non-performing asset (NPA) provisions and aims for increased profitability through the recovery of outstanding amounts.

How Shares of PNB have Performed

Over the past month, PNB share price has surged by 5.4%. In 2023 so far, the shares have rallied 39%.

The company touched its 52-week high of Rs 83.45 on 3 October 2023 and its 52-week low of Rs 43.30 on 17 November 2022.

Here's a table comparing PNB with its peers

Company	PNB	Canara Bank	SBI	Bank of Baroda
ROE (%)	3.3	16.4	18.4	14.9
ROCE (%)	5.9	14.8	12.5	13.3
Latest EPS (Rs)	5.4	76.7	76.4	35.6
TTM PE (x)	14.8	5.3	7.6	5.5
TTM Price to book (x)	0.9	0.9	1.4	0.9
Dividend yield (%)	0.8	3.0	1.9	2.8
Industry PE	8.5
Industry PB	1.3

Data Source: Ace Equity

About PNB

PNB is one of the largest PSU banks in India. It has a strong distribution network of 10,925 domestic branches, 13,914 ATMs, and two international branches.

After amalgamation of Oriental Bank of Commerce and United Bank of India with PNB, it had a customer base of over 180 million.

For more details about the company, you can have a look at the PNB fact sheet and quarterly results on our website.

You can also compare PNB with its peers.

PNB vs SBI

PNB vs HDFC bank

PNB vs AU small finance bank

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...