Nomura Financial Advisory and Securities has maintained 'Neutral' rating on Punjab National Bank (PNB) with revised target price of Rs 160 from Rs 200 with current market price (CMP) of Rs 146 in its report.

Commenting on the investment rationale, Nomura said, ''4QFY15 was a rather significant miss with highest-ever stress accretion (15% annualised) leading to a PBT loss of Rs 6.3 billion. Total impairment at Rs 150 billion was 2x of expectations and highlights PNB's weak underwriting vs peers. While PNB attempted to front-end part of the stress through restructuring borderline cases, with 10% restructured book, relapse risk remains highest.

PNB reported slippage of  INR74bn (INR55bn in 3QFY15) and restructuring of Rs 78 billion (Rs 27 billion in 3QFY15) leading to 2x increase in impairment levels from an already weak asset quality base. Impairments were high from power and metals but still do not include names like Bhushan/Essar where exposure levels are higher. It seems that PNB has front ended some recognition to take benefit of the sunset in restructuring and impairment levels would likely come off in 1QFY16, but with 10% standard restructured book now, relapse risk remains the highest.

We cut FY16-17F EPS by 15% and our TP to Rs 160 (0.8x FY17F book). The TP cut was driven by the 8% cut in book value and reducing multiple to 0.9x to 0.8x FY17F book. While our FY15-17F earnings at 30% CAGR looks large it just gets ROEs back to 12% from 8% currently and hence we believe 0.8x FY16F book is fair multiple. Relapse risk remains the highest and hence we continue to remain cautious.''

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