The shares of Punjab and Sind bank recently witnessed a spectacular move. They hit the upper circuit as they gained 9.96%. The PSU Bank’s shares were locked at ₹ 40.85 apiece at 10:45 AM on Tuesday and reached a fresh 52-week high on the National Stock Exchange (NSE).
The bank’s share price increased by 42.09% in the past five days. In fact, in the past month, its share price increased by a whopping 122.01% from ₹ 18.40 apiece to ₹ 40.85 apiece, giving multibagger returns. Therefore, if an investor would have invested ₹ 1 lakh in the company’s shares one month ago, the value of their holdings would have been ₹ 2.22 lakhs today!
Punjab & Sind Bank reported healthy earnings in the July-September quarter. Its net profit grew 27.5 per cent year-on-year (YoY) to ₹ 278 crores against ₹ 218 crores in the corresponding quarter last year.
Its net interest income grew 25.6 per cent YoY, while its net interest margin (NIM) improved to 3.06 per cent in the July-September quarter (Q2FY23) from 2.60 per cent in the same period a year ago (Q2FY22). Its gross non-performing assets (GNPA) ratio was reduced by 487 bps on a YoY basis to 9.67 per cent.
CARE ratings, on September 29 reaffirmed the ratings of the bonds issued by the bank and revised the outlook from “Negative” to “Stable”. In its rating rationale, CARE ratings said that the debt instruments of the bank factor in majority ownership demonstrated and expected continued support from the Government of India (GoI). The GOI is the majority shareholder, holding a 98.25 per cent share in the bank.
There was a capital infusion of ₹ 5,500 crores during FY21 (refers to the period April 01 to March 31) and ₹ 4,600 crores in FY22 by way of recapitalisation bonds. These have helped the bank to maintain its capitalisation ratios and would support business growth in the near term, CARE ratings said.
Further, it factored in the bank’s established presence in north India as well as its strong liquidity profile. Ir added that the change in the outlook to “Stable” is on account of improvement in profitability and asset quality parameters resulting in a limited impact of credit costs on the profitability of the bank.
The bank’s earnings profile has been moderate as it has started reporting profits from FY22; however, any higher-than-expected impact on account of COVID-19-related stress might impact the profitability, CARE ratings said.
Punjab & Sind Bank has relatively weaker asset quality parameters as compared to its peers and a higher proportion of stressed assets, however, the bank has made a significant amount of provisioning during the third quarter of FY21, which has improved the provision coverage ratio (PCR) on gross non-performing assets (GNPA) for the bank, the rating agency added.
Punjab & Sind bank is a mid-cap stock with a market capitalization of ₹ 22,909 crores. It has a return on equity of 9.29% and an ideal debt-to-equity ratio of 0.59. Its shares were trading at a price-to-equity ratio (P/E) of 14.71, which is significantly higher than the industry P/E. This indicates that the stock is overvalued, as compared to its peers.
Written by Simran Bafna
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