Hold Canara Bank; target of Rs 500: Emkay

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Hold Canara Bank; target of Rs 500: Emkay

Emkay Global Financial Services has recommended hold rating on Canara Bank with a target of Rs 500, in its January 27, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on Canara Bank with a target of Rs 500, in its January 27, 2012 research report.

"Canara Bank Q3FY12 NII at Rs19.2bn (down 8.2% yoy) and operating profit at Rs15.8bn (up 4% yoy) was largely inline with our estimates. Non-int income at Rs7.8bn, (-6% qoq) and operating expenses at Rs11.2bn (-5% qoq) too held up well. However, higher provisioning, largely in the nature of investment depreciation (Rs1.8bn) and PV loss (Rs1.6bn) on a restructured telecom account dragged bottomline. GNPA / NNPA at Rs40bn / Rs33bn were up 5% qoq each. The proportion of doubtful assets within gross NPAs has moved up by 10% qoq to 46%. Lower LLPs at 30bps (annualized) and Rs15bn (0.7% of total loans) of additional restructuring during the quarter was a key negative."

"Loan portfolio expanded 15.5% yoy (0.6% qoq). Against this, deposit book expanded 20% yoy (1% qoq). Reported NIM at 2.52% declined 12bps qoq. Balance sheet expanded 21% yoy (1.5% qoq). Interestingly, against 5% qoq decline in investment portfolio, balances with bank and money at call and short notice at Rs144bn has grown 2x on a qoq basis. LDR has been on decline for long now and currently stands at 69.5%. Loan growth at 16% yoy (0.6% qoq) was led by higher than expected growth on the corporate loan portfolio front. Corporate book expanded 26% yoy (3.2% qoq) and now comprises 57% of total loans (52% as at Q3FY11). Interestingly, against 3% YTD growth in overall loan portfolio, corporate loan book has actually witnessed higher 9% YTD growth."

"Better NPA management through strong cash recoveries / up-gradation with moderation in slippages was the key highlight during the quarter. While a sudden spike in restructured loan portfolio was a along the expected lines and a one-off event, we were a bit disappointed on NPA provisioning. However, we remain impressed given banks remarkable job on asset quality front. However, the lower LLPs despite high slippages remain a disappointment. For M9FY12, the LLPs are % of advances were at 0.5% vis-à-vis net slippages (gross less reco/upgrades) at 1.1% for the same period. To take into account lower LLPs, we have upgraded our earnings estimates by 8/3% for FY12/13E. As our slippages and recoveries estimates remain unchanged, there would be no change in ABV estimates. In a systematic scenario of loan growth moderation, a 16% yoy credit growth on the overall front for the bank seems reasonable. Further with healthy capital ie CAR at 13.2% including Tier I at 9.5% (excluding 9m profit), we believe there is room for growth. The stock trades at 1.2x / 1x FY12/FY13 ABV. We maintain HOLD with target price of Rs 500," says Emkay Global Financial Services research report. 

Institutional holding more than 40% in Indian cos

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