Accumulate Canara Bank; target of Rs 350: KR Choksey

Business re-organization and credit quality risks continue to haunt earnings performance of Canara Bank. The net profits for Q3FY17 increased Y-o-Y to INR 3.2 bn (tad below estimates) on a lower base and primarily on account of higher non-interest income which stood at INR 17.92 bn (53.3% Y-o-Y, 0.6% Q-o-Q) and lower provisions (3.9% Y-o-Y increase, Q-o-Q decline) for the quarter. NII continues to stay weaker largely due to interest reversals and flattish advances growth.

While the Management claims the situation will starting improving from the next quarter and that the NPA trend should begin its decline next quarter onwards, the headwinds still persist, we reckon. While the business consolidation exercise continues to deter the top-line, the focus on built-up of staunch liability franchise with increased thrust on both asset (retail loan traction) and liability side (CASA augmentation) should aid improved business performance ahead. For now, the weak liability franchise characterized by poor return profile and capital raising being on cards and the bank yet not out of woods (though slippage has tad declined), we have ACCUMULATE recommendation.