Buy Canara Bank; target of Rs 542: Dolat Capital

Dolat Capital is bullish on Canara Bank and has recommended buy rating on the stock with a target of Rs 542 in its May 11, 2012 research report.

“In Q4 FY12, Canara Bank’s net interest income (NII) grew by 5% YoY to Rs 20.4bn- 1.8% higher than our estimates of Rs 20bn. Much higher liabilities cost curtailed NII growth. Interest expense grew by 40% YoY to Rs 62.3bn as against 29.4% YoY growth in interest income to Rs 83bn. In this quarter, other income de-grew by 20% to Rs 7.7bn and total operating expenses increased by 8.9% YoY to Rs 13bn. On account of lesser net income and increase in overheads, bank’s cost-income ratio rose to 47% from 41.6% in Q3 FY12 and 42% in Q4 FY11. Hence, it reported much lesser operating profit of Rs 15bn compared to our estimates of Rs 18bn. However, lesser provisioning aided bottom-line in-line with our estimates. The net profit declined by 7.8% YoY to Rs 8.3bn (our estimates of Rs 8.4bn) and consensus estimates of Rs 9.4bn. Sequentially, the bank’s gross NPA rose marginally by 0.8% to Rs 40bn. In percentage terms, NNPA ratio declined by 3bps QoQ to 1.46%, while GNPA ratio drifted by 8bps QoQ to 1.73%. Lesser NPA provisioning led to slight decline in provision coverage ratio on sequential basis to 67.6% from 69% in Q3 FY12.”

“In Q4 FY12, the bank’s total business grew by 10.5% YoY to Rs 5.6tn. Deposits and net advances grew by 11.3% and 9.4% to Rs 3.3tn and Rs 2.3tn respectively. Credit-deposit ratio rose to 71.1% from 69.5% in Q3 FY12 and slightly decline from 72.3% in Q4 FY11. On the credit book side, the agriculture, infrastructure and industrial segments were key contributors to growth. However, the dependence for growth during the last few years on wholesale advances (especially power sector) and short-term corporate loans on unsecured basis has been reduced. In deposits, global CASA share slightly improved to 24.3% from 23.6% in Q3 FY12. Going forward, moderate deposit growth could aid CASA share. We factor in slight improvement in CASA share to 25% in FY13 and FY14. The management expects 17-18% YoY expansion in total business in FY13 and we expect business to grow 17.3% YoY on the back of a 17.1% growth in deposit mobilization and 17.5% YoY expansion in credit book.”

“Overall, the bank’s quarterly result was on expected lines. NPA levels remained contained on sequential basis. However, owing to concerns on margin and asset quality, we reduce our earning estimates by 4.8% in FY13 and FY14’s estimates remain the same. We rollover our target price on FY14’s estimates. We maintain our Buy rating on the stock a target price of Rs 542. At current price, it quotes at 0.9x and 0.8x ABV FY13 and FY14 respectively; based on our target price, the stock would quote at 1.0x adjusted book value FY14,” says Dolat Capital research report.     

Bodies Corporate holding more than 50% in Indian cos   

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More