Buy Canara Bank; target of Rs 185: Emkay Global Financial

Emkay Global Financial's report on Canara Bank

After the first round of capital raise in Dec’20 (Rs20bn at Rs109 per share), CBK raised Rs25bn this week via the second tranche of QIP at a better price of Rs149.3 per share. We believe that the capital raise will mainly shore up its capital ratios, which remain subpar compared to peers after the merger with Syndicate Bank. The second round of QIP was subscribed by LIC (15.9%), BNP Paribas (12.6%), Societe Generale (8%), Indian Bank (6.4%), ICICI Pru Life insurance (6.4%), Morgan Stanley (6.2%) and Volrado Ventures (6.1%). Major investors in the Dec’20 QIP were LIC (25%), BNP Paribas (9.1%), Nippon Life (8.8%) and Societe Generale (7.9%). After the QIP, the government’s stake has fallen to 62.9% from 69.3%.

Outlook

We believe that merger-related concerns are largely behind and the bank should report a gradual improvement in its RoA/RoE to 0.4-0.5%/10-11% by FY23E-24E, led by better growth and moderate LLP. Retain Buy with a TP of Rs185, valuing the core bank at 0.6x Sep’23E ABV and subs at Rs22 per share.