Accumulate Canara Bank; target of Rs 377: KR Choksey

KR Choksey recommended accumulate rating on Canara Bank with a target price of Rs 377 in its research report dated July 20, 2017.

July 21, 2017 / 15:23 IST

26 Aug, 2025 12:21

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KR Choksey's research report on Canara Bank

As against the management’s guidance of improved asset quality for FY18, Q1FY18 saw further deterioration with gross NPAs inching up to 10.56% (versus 9.71% for Q1FY17, 9.63% for Q4FY17). In absolute terms, gross NPAs grew by 16% yoy and 10% qoq. While total interest income stayed flattish on yoy basis, it de-grew by 2.8% on qoq basis. Despite the weak interest income performance, the Bank managed to expand it NIMs to 2.34%, 11 bps qoq and 19 bps yoy. Pre-provisioning profit saw a strong growth of 35.9% yoy on account of improved operational efficiency (cost/income was 48.7% versus 53.3% for Q1FY17). However, PAT was up only 9.9% yoy (up 17.5% qoq) on account of extra provisioning in general and with respect to the 12 identified accounts identified by the RBI. Provisioning expense was up 47.6% yoy (down 18.6% qoq). The Bank has delivered calculated annualized RoA of 0.17% against 0.15% for Q4FY17 and 0.17% for Q1FY17.

Outlook

Although the declining trend of slippages is somewhat comforting, GNPAs of 7%+ still look worrisome and may have a long way to go before declining substantially. The management has a clear-cut strategy in place with priority over balance sheet strengthening over improving profitability. On the NII front, growth and NIM expansion should come o account of cautious lending to the corporate sector and increasing share of retail loans (sharp focus on direct housing) along with improvement in CASA to 35% by FY18 and beyond thereafter. While we believe the Bank’s strategy to be a sound one, asset quality and earnings improvement still remain watchful. Hence, we maintain ACCUMULATE recommendation on the stock, valuing it at 1.25x FY19E ABV.

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