Buy Canara Bank; target of Rs 282: Emkay Global Financial

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26 Aug, 2025 12:21

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Canara Bank reported a higher-than-expected PAT of Rs16.7bn in Q4 (though slightly lower than consensus), mainly aided by higher other income and lower provisions. Slippages were significantly higher at Rs47.6bn (3% of loans), excluding future retail exposure of Rs12bn on which the bank carries a 60% PCR. Overall credit growth was healthy and in line with system at 10% yoy, but margins were largely flat at 2.8% due to interest reversal on a/c of higher slippages. CBK has indicated that the potential notional loss as of now on its investment portfolio seems to be limited to Rs2bn, but we believe rising G-sec yields could keep treasury performance in check. CET 1 remains low at 10.3% and thus the bank may look at raising capital via QIP/bonds instead of any stake sale in subsidiaries at this point. As far as its subsidiary CanFin Homes is concerned, the alleged irregularity was in 37 a/cs with a value of <Rs40mn. However, CBK is still conducting thorough audit to weed out residual irregularity, if any.

We expect a gradual improvement in RoA/RoE to 0.6-0.7%/12-15% over FY23-25E from 0.5%/11% in FY22, led by better growth and lower LLP. Retain Buy with a revised TP of Rs282 (vs. Rs290) based on (0.8x FY24E ABV) and subs investment of Rs23.

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