Buy Canara Bank; target of Rs 130: Emkay Global Financial

Emkay Global Financial's research report on Canara Bank

Despite margin slip in 1Q due to seasonal factors and change in recognition of penal interest into other income, Canara Bank reported largely in-line earnings with PAT at Rs39bn/1% RoA mainly led by higher PSLC fees at Rs17.5bn and contained provisions. The bank guided for slower growth in FY25 with margins around 2.95-3%, but contained credit costs should help it deliver healthy RoA. Following the implementation of new investment classification norms, the bank’s CET 1 ratio has improved by 50bps QoQ to 12%. However, given the potential impact of ECL, we believe the bank will need to shore-up capital from the market or offload its stake in a few subsidiaries.

Outlook

We slightly trim our earnings estimate for FY25-27 by 2-3% factoring margin pressure, but expect Canara Bank to deliver healthy RoA at 1-1.1%. Thus, we retain BUY on the bank with an unchanged TP of Rs130/share, valuing the standalone bank at 1.1x Jun26E ABV and subsidiaries at Rs6/sh.