Angel Broking is bullish on Canara Bank and has recommended buy rating on the stock with a target of Rs 517 in its February 08, 2013 research report.
“Canara Bank reported a subdued operating performance, as its pre-provisioning profit declined by 3.8% yoy, which was in-line with our expectations. Asset quality pressures continued for the bank during the quarter, as slippages remained elevated, which resulted in 24.9% yoy increase in provisioning expenses and consequent 18.9% yoy decline in bottom-line.”
“During 3QFY2013, the bank’s advance book remained almost flat on a yoy basis, while deposits grew at a subdued pace of 2.7% yoy. Current deposits grew by 3.4% yoy, while the saving deposits grew by 8.4% yoy. Calculated CASA ratio for the bank improved by 24bp sequentially to 25.1%. Sequentially, the bank’s yield on advances came in 8bp lower to 11.1%, which resulted in a 17bp sequential fall in the reported NIMs. Non-interest income (excluding treasury) witnessed a decline of 4.4% yoy, on back of lower recoveries from written off accounts and de-growth in CEB income. During 3QFY2013, the bank witnessed continued asset quality pressures, as slippages, on an absolute basis, remained elevated at Rs1,314cr, (though lower sequentially considering slippages of Rs1,922cr in 2QFY2013 and Rs1,497cr in 1QFY2013). Incremental slippages during the quarter were broadbased and granular in nature, except for one account each in infrastructure and education sector, amounting to more than Rs50cr each. However, recoveries/upgrades came in at Rs217cr compared to Rs662cr in 2QFY2013 and Rs657cr in 1QFY2013. Hence, gross and net NPA levels for the bank increased sequentially by 8.6% and 12.4%, respectively. As of 3QFY2013, the gross NPA ratio stood at 2.8%, higher by 19bp sequentially, while the net NPA ratio stood at 2.4%, higher sequentially by 23bp from. PCR dipped sequentially by 202bp to 61.0%. Additionally, the bank restructured Rs857cr worth of accounts during the quarter (of which around 50% came from 3 chunky accounts in the steel sector), which is higher than Rs610cr restructured in 2QFY2013, thereby taking its outstanding restructured book to Rs14,501cr.”
“At the current market price, the stock trades at cyclically moderate valuation of 0.8x FY2014E ABV vs eight-year average of 1.1x and range of 0.7-1.4x. We value the bank at 1.0x FY2014E ABV and recommend a Buy rating on the stock with a target price of Rs517,” says Angel Broking research report.
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