Analysts said the profit beat Street expectations by a wide margin despite moderate credit growth and soft net interest margin (NIM). Despite some concerns over slippages due to one large account, they have targets that suggest up to 40 per cent upside over Tuesday’s closing price.
Jhunjhunwala bought 29,097,400 shares or 1.60 per cent stake in Canara Bank in the quarter gone by. His stake was valued at Rs 584 crore as of Wednesday’s price.
“Higher-than-expected slippages of Rs 6,900 crore (or 4.5 per cent of loans came in as an irritant, but they included the lumpy SREI Group (Rs 3,200 crore) for which the bank has made a 50 per cent provision. However, higher recoveries/upgrades led to a marginal reduction in GNPA to 8.4 per cent. The restructured pool was down to Rs 18,100 crore, with no further pipeline,” said Emkay Global.
The bank reported a three-fold jump in quarterly profit at Rs 1,333 crore despite a flattish NII at Rs 6,273 crore. NIM came in at 2.72 per cent which was lower than last year’s 2.82 per cent.
Canara’s gross advances grew 5.8 per cent year-on-year (YoY) to Rs 6.87 lakh crore while the corporate loan portfolio rose 2.2 per cent to Rs 2.96 lakh crore. The retail lending book rose 10.46 per cent to Rs 1.19 lakh crore.
On the business front, the bank witnessed a decent sequential recovery in the growth of its retail and agri portfolios, while the weak trend in its corporate book continued.
Gross NPA ratio declined to 8.42 per cent from 8.5 per cent YoY.
“SMA overdue declined to 2 per cent of loans against nearly 3 per cent in June quarter while restructured portfolio remained stable QoQ at 2.9 per cent of loans. Overall, we expect CBK’s credit costs to moderate from FY23 onwards and estimate RoA of 0.8 per cent and RoE of 13.6 per cent by FY24E,” said Motilal Oswal Securities while resuming its coverage on the stock with a ‘Buy’ rating.
This brokerage has a target of Rs 270 on the stock.
Emkay has retained its ‘Buy’ target of Rs 230, factoring in better return ratios. The brokerage said that merger-related concerns for the bank are largely behind us, and the bank should report a gradual improvement in its RoA to 0.4-0.6 per cent and RoE to 9-13 per cent over FY22-24, led by better growth and moderate LLP.
Kotak has upgraded Canara’s rating to ‘Add’ with a target of Rs 210 from Rs 150, valuing the bank at 0.8 times September 2023 adjusted book while expecting RoEs to touch 8-10 per cent in the medium term.
“We note that the bank’s performance has surprised positively over the past 12 months despite Covid and merger-related challenges. The bank’s asset quality metrics while weaker than SBI, is closer to BoB. We see limited risks to earnings in the near term if Covid risks continue to abate, but high sensitivity to credit costs would imply wide range of outcomes and hence likely to reflect in multiples. Despite the strong recent rally, Canara Bank can potentially be considered within the PSU bank ideas beyond SBI and BOB,” Kotak said.
On Wednesday, the stock was trading at Rs 200.80, up 3.83 per cent.
