Accumulate Canara Bank; target of Rs 515: Dolat Capital

“In Q3 FY12, Canara Bank’s net interest income (NII) de-grew by 9.5% YoY to Rs 19.2bn - 9.4% lesser than our estimates of Rs 21bn. The bank reported operating profit of Rs 15.8bn (Dolat est: Rs 15.5bn). Net profit declined by 20.8% YoY to Rs 8.8bn (our estimates of Rs 9.9bn) and consensus estimates of Rs 9.2bn.  The deviation on core income level was due to much higher than expected liabilities cost. Interest expense grew by 55.6% YoY to Rs 58.9bn as against 32.2% YoY growth in interest income to Rs 78.1bn.”

“Further, its reported decline in NIM by 60bps YoY and 12bps QoQ to 2.52% as against 3.12% in Q3 FY11 and 2.64% in Q2 FY12. However, operating level was slightly higher than expected mainly due to robust growth in other income (primarily on account of much higher capital gains and fee income). At the bottom-line level, performance was subdued due to much higher provisioning for investment depreciation and NPA losses on restructured account. Sequentially, gross additions to NPAs were lesser at Rs 8.6bn, compared to Rs 12.4bn in Q2 FY12. The total restructured loan book increased to Rs 95bn as against Rs 85bn in Q2 FY12.”

“Overall, the bank’s quarterly result was below expectations mainly due to lesser than expected NII and provisions for fresh restructuring. NPL levels remained contained but restructuring provisions dented bottom-line further. We reduce our FY12 and FY13 earnings estimates by 2.5% and 1% respectively and reduce target price to Rs 515 at 1.14x adjusted book value (ABV) FY13. At current price, the stock quotes at 1.0x ABV FY13. We rate the stock as an Accumulate,” says Dolat Capital research report.   

FIIs holding more than 30% in Indian cos

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