Buy Canara Bank; target of Rs 300: Motilal Oswal

Motilal Oswal's research report on Canara Bank

Canara Bank (CBK) reported a steady operating performance with NII growth of 10% YoY (7% miss). Healthy treasury gains and traction in fee income led to 13% beat in total revenue (16% YoY). Margin contracted 15bp QoQ to 2.8% while PPoP grew 21% YoY (18% YoY rise in Core PPoP). On the business front, CBK witnessed strong demand momentum as it clocked 6% QoQ/15% YoY growth in advances. Growth was driven by the corporate segment with a sharp jump of 8.9% QoQ. Thus, the share of corporate in mix improved 160bp to 46.6%. Deposits, conversely, grew 3% QoQ led by term deposits as CASA deposits saw a sequential decline of 2%. Fresh slippages moderated 17% QoQ to INR39.5b, while healthy recoveries and upgrades of INR22.3b along with higher write-offs worth INR26.4b led to improvements in asset quality ratios. GNPA/NNPA improved 53bp/17bp QoQ to 6.98%/2.48%, respectively.

Outlook

Further, SMA overdue declined to 1.29% from 1.53% in 4QFY22, while the restructured portfolio improved 36bp to ~2.4% of loans. We raise our PAT estimates by 14%/16% for FY23/24, respectively, to account for higher other income and loan growth. We expect CBK to deliver FY24E RoA/RoE of 0.8%/13.8%. Retain BUY with a TP of INR300 (based on 0.8x FY24E ABV).