Accumulate Canara Bank; target of 440: Dolat Capital

Dolat Capital is bullish on Canara Bank and has recommended accumulate rating on the stock with a target of Rs 440 in its November 7, 2012 research report.

“In Q2 FY13, Canara Bank core lending business was quite tepid unlike growth in banking industry. Relatively small but credit demand was prevalent in the system, but the bank’s quarterly performance reflects that in order to protect margin and asset quality, the bank did not wish to expand its credit book. The bank witnessed deterioration in asset quality, but it also made slightly higher provisions aiding NPA coverage buffer. Disappointment on asset quality and non-interest income fronts made a dent in profitability.”

“Canara bank reported NII at ` 19.6bn 6% growth on Q/Q basis and flat on Y/Y basis, 3.3% above Dolat estimates mainly due to stable margin backed by higher credit book’s yield. Non-fund income recorded weak performance in each of segments; core fee income fell by 16% Y/Y. Higher than expected Opex and much lesser other income led to lesser Operating profit at ` 12.8bn (8% degrowth Q/Q and 20% de-growth Y/Y), 5% below our estimates. The bank raised its NPA provisions pace reflecting into higher provision coverage at 19% (without technical write-offs), bottomline fell to ` 6.6bn (15% de-growth Q/Q and 22% Y/ Y growth), 4% higher than Dolat estimates. Overall, on positive side, the bank contained erosion in margin and increased NPA provisioning pace to enhance provision buffer. On the flip side, weakness in non-interest income and much higher gross slippages hurt profitability. At current price the stock quotes at 0.82x ABV FY14.”
 
“We reduce our earning estimates for FY13/FY14 by 4.2%/10.4% respectively on the back of weakness in business growth, flat margin, much lesser noninterest income and deterioration in asset quality. We decrease our target price by 11% to ` 440 at 0.92x ABV FY14. We maintain our stock rating at Accumulate,” says Dolat Capital research report.  

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