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Buy Canara Bank; target of Rs 385: Emkay Global Financial

Emkay Global Financial is bullish on Canara Bank has recommended buy rating on the stock with a target price of Rs 385 in its research report dated January 23, 2023.

January 25, 2023 / 05:37 PM IST
 
 
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Emkay Global Financial's research report on Canara Bank

Canara Bank reported a strong beat on PAT at Rs28.8bn, up 92% YoY (vs our estimate of Rs20.2bn), mainly backed by continued uptick in margins and lower opex. The bank has moved to the new tax regime in 3Q and, thus, effective tax rate has been lower, at 25%, supporting profitability. Credit growth was decent at 18% YoY/4% QoQ, largely driven by robust traction in the corporate book. Unlike PVBs, deposit growth was better than the industry run rate at 12%/3% QoQ. However, NIM shot up by 19bps to 3.1% due to continued asset re-pricing and higher yield on balances with the RBI. Fresh slippages moderated to Rs32bn/1.9% of loans that, coupled with higher recoveries/w-offs, led to 47bps QoQ reduction in GNPA ratio to 5.9%. Bank has several resolutions lined up (SREI, Religare Finvest, ADAG Group) which are largely written-off and should boost its ‘other income’.

Outlook

We raise our earnings estimates by 18-28% over FY23-25, factoring-in better margins, higher recovery from written-off accounts and lower tax rate. We now expect RoA/RoE to improve to 0.9%/17% by FY25E (without considering capital raise). We retain BUY on the stock, with revised TP of Rs385/share, based on 0.9x Dec-24E ABV and subsidiary/investment value of Rs23.