AnandRathi is bearish on Canara Bank and has recommended sell rating on the stock with a target price of Rs 239 in its August 05, 2013 research report.
AnandRathi's research report on Canara Bank
"Canara Bank's advances rose 10.8 percent yoy (3.2 percent qoq), deposits grew faster, at 14.2 percent yoy, thereby decreasing credit-deposit 199bps yoy to 65.4 percent. Advances growth was driven by the priority sector (27.3 percent yoy) and farm loans (38 percent yoy). While NIM fell 17bps yoy (3bps qoq) to 2.2 percent, the proportion of CASA decreased 16bps yoy (106bps qoq) to 23.1 percent."
"While fee income grew 16.2 percent yoy (3 percent qoq), trading profits rose 349 percent yoy to Rs 4.4bn and comprised 23.4 percent of pre-provisioning profits (7.1 percent in 1QFY13). Productivity worsened, with core cost-to-income increasing 92bps yoy to 47.8 percent. With modest business growth prospects, fee income and operating leverage are unlikely to improve substantially. Over FY13-15, we expect fees to post a 15.7 percent CAGR, with cost-to-assets at ~1.3 percent."
"Gross NPA grew 17.1 percent qoq, with fresh slippages of Rs 26.9bn (annualised, 4.5 percent of loans). NPA coverage fell 41bps qoq to 15.3 percent and is still the lowest of peers. In 1QFY14, Rs 16.8bn of loans were restructured, with total restructured loans at Rs 199bn (8 percent of loans)."
"Due to lower credit growth and higher NPA assumptions, we slash our FY14 and FY15 net profit estimates 33.1 percent and 28.4 percent respectively. Hence, we lower our target from Rs 405 to Rs 239. We maintain our Sell rating, since we expect near-term profitability to be constrained by sluggish business and weak asset quality. Also, the RBI's recent liquidity-tightening measures are a valuation overhang. While the present valuation appears to price in asset-quality concerns, persisting perceptions of default risk would restrict a valuation re-rating. At our Mar'14 target, the stock would quote at PABV of 0.6x FY14e and 0.5x FY15e. Our target is based on the two-stage DDM (CoE: 14.5 percent; beta: 0.9; Rf: 8 percent). Risks. Faster credit growth, sharp decline in defaults," says AnandRathi Securities research report.
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