Accumulate Canara Bank; target of Rs 201: Reliance Securities

Canara Bank has reported highest ever loss in its history in 4QFY16 with its new management fully recognising impairment and ensuing provisioning impact of asset reclassification in compliance with AQR by the RBI. Moreover, it has also fully provided for UDAY bonds/SEB exposure and loan to Punjab Govt. This has led to sharp rise in slippages to Rs 146bn in 4Q (at slippage ratio of 17.6%)  v/s Rs 54bn (6.7%) in 3Q & Rs 247bn (7.5%) in FY16 v/s Rs 109bn (3.6%) in FY15. Further, provisioning expanses grew 527% YoY & 343% QoQ to Rs 63.3bn as the Bank provided for all AQR cases with additional provisioning on UDAY bond and food credit exposure to Punjab Govt for which the Bank incurred Rs 39.1bn loss in 4Q v/s Rs 850mn profit in 3Q & Rs 6.1bn in 4Q, with which its net-worth slipped by 11.1% QoQ to Rs 316bn.

Though the Management assured for striving to regain its lost repute in ensuing quarters, effective execution of strategic revival plan holds the key. We downwardly revise FY17E earnings by 62.6%, as sharp rise in incremental stressed asset formation n FY16 along with subdued operating performance will continue to dent Bank’s performance, going forward. As we turned cautious on the stock’s performance post current run-up, we change our recommendation on the stock to ACCUMULATE from BUY with a revised Target Price of Rs 201 (earlier Rs210) valuing the stock at 0.8x FY18E Adj. Book Value.For all recommendations, click here 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.