Buy Canara Bank; target of Rs 522: Angel Broking

Angel Broking is bullish on Canara Bank and has recommended buy rating on the stock with a target of Rs 522 in its May 10, 2012 research report.

“Canara Bank reported a weak set of numbers for 4QFY2012, with net profit declining by 7.8% yoy to Rs829cr. The company’s bottom line was dented by subdued net interest income (in-line with our expectation), yoy decline in fee income (higher-than-expected) and higher operating expenses. We maintain our Buy recommendation on the stock.”

“The bank’s overall business growth remained moderate, with advances growth of 9.4% yoy, largely aided by agriculture, infrastructure and industrials segments. Deposits grew by 11.3% yoy. On the liabilities front, calculated CASA ratio declined by 393bp yoy to 24.3% due to a 39.5% yoy decline in current deposits despite moderate 10.5% growth in saving deposits. Reported NIM for the bank remained flat sequentially during 4QFY2012, as rise in yield on advances by 8bp qoq to 10.93% was completely offset by a similar rise in cost of deposits to 7.35%. Commission and brokerage income declined during the quarter by 13.7% yoy to Rs215cr. Gross and net NPA ratio for the bank remained at nearly the same levels on a qoq basis. Provision coverage ratio for the quarter also remained flat sequentially at 67.6%. During 4QFY2012, the bank restructured Rs4,504cr worth of accounts, of which Rs1,475cr were on account of restructuring of Air India. The outstanding restructured book as of 4QFY2012 stands at Rs7,986cr. The bank did not restructure any SEB accounts during 4QFY2012, but expects Rs5,385cr of SEB restructuring to occur in 1QFY2013, which would include discoms from Rajasthan, Haryana, U.P. and Gujarat.”

“Although a weakening domestic macro-economic environment and consequently slower credit growth and ailing asset quality are likely to cap near-term upsides, cyclically moderate valuations of 0.7x FY2014E ABV vs. five-year average of 1.0x and range of 0.7-1.4x in our view largely factor in the negatives. Hence, we recommend Buy on the stock with a target price of Rs522,” says Angel Broking research report.   

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