LKP Research's research report on Canara Bank
Canara Bank has been reporting consistent growth in net profit since previous ten quarters. In 3QFY23, the profitability increased by 92% YoY and 14% sequentially on the back of lower provisioning expenses. A bulky provision (₹54bn) made in 4QFY20 (two years ago), continued to safeguard the balance sheet from delinquencies out of restructuring with PCR (calculated) of 68.2% and PCR (including TWO) of 86.3%. On asset quality front, the GNPA/ NNPA ratio (5.90%/1.96%) improved by 47bps and 23bps respectively on the back of lower NPA addition of ₹32bn. The slippages ratio (reported) marginally down at 34bps v/s 35bps in the previous quarter. The cumulative SMA1/2 book also eased to 49bps v/s 51bps in 2QFY23. On the business front, the bank has reported healthy gross credit growth of 13.6% YoY and 2.9% sequentially. The bank’s recoveries are in line with the guidance and expect the credit cost to be below 2% for FY23. Furthermore, the NIMs have expanded by 10bps sequentially to 2.93% driven by higher YOA (7.45% v/s 7.24% in 2QFY23) and slightly higher cost of deposit (4.19% v/s 4.09% in 2QFY23). We believe the bank is growing the balance sheet with well-adjusted margins and it is expected to bode well in near term. Moreover, the CET – 1 (11.45%) has improved with AT-1 bond issues. We believe the hurdles are long behind us and the bank shall witness gradual improvement in profitability with FY24E ROA/ ROE of 1%/17%. In view of inexpensive valuation (0.66x PBVPS) we recommend BUY.
We value the standalone entity with 0.7xFY24E BVPS (₹499) and arrive at a target price of ₹349. We recommend BUY with a potential upside of 20%
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