Buy Canara Bank; target of Rs 363: Angel Broking

Angel Broking`s research report on Canara Bank

“Canara Bank reported moderate operating numbers for 4QFY2014, while asset quality exhibited improvement (aided by sale of vulnerable assets to ARCs). The key highlights of the results are: 1) NII growth of 21.3percent yoy (adjusting for one-off interest on income tax refund of Rs100cr, the NII grew 16.1percent), 2) Sale of assets to ARCs - Rs1,400cr (net impact Rs700cr), 3) NIM improvement by 6bp qoq, 4) Earnings de-growth of 30.7percent adjusting for one-off item.”

“During 4QFY2014, the bank’s loan book grew strongly by 24.3percent yoy, while deposits book grew healthy at 18.2percent yoy. Calculated CASA ratio for the bank increased by 36bp yoy (145bp qoq) to 24.5percent. Reported NIM for the bank increased sequentially by 6bp to 2.3percent. During 4QFY2014, the non-interest income (excluding treasury) witnessed an increase of 31.9percent yoy, primarily on back of robust growth in ‘others’ at Rs600cr compared to Rs390cr in 4QFY2013. On the asset quality front, slippages came in at Rs2,135cr (annualized slippage rate of 3.5percent as compared to Rs2,100cr in 3QFY2014. Recoveries/upgrades came in higher at Rs2,243cr, as compared to Rs1,061cr in 3QFY2014 and Rs520cr in 4QFY2013. The bank sold assets worth Rs1,400cr to ARCs (NPA impact of Rs700cr). Absolute gross and net NPAs decreased by 6.2percent and 13.2percent qoq respectively. Thus, the Gross and Net NPAs got reduced by 30bp and 41bp qoq to 2.5percent and 2.0percent respectively. The PCR for the bank increased qoq by 272bp to 60.1percent. Additionally, the bank restructured advances worth ~Rs1,432cr, thereby taking its outstanding restructured book to Rs23,205cr. Going forward, the restructuring pipeline for the bank over the next few quarters remains sizeable at ~Rs3,000cr.”

“The bank witnessed asset quality improvement in 4QFY2014, aided by sale of assets to ARCs. Going ahead, the Management has exuded confidence of achieving Gross and Net NPA ratios of 2percent and 1.5percent respectively by FY2015. At CMP, even after the recent run-up in the stock price, the stock trades at a relatively cheap valuation of 0.4x FY2016E ABV as compared to large PSU banks. We recommend a Buy rating on the stock,” says Angel Broking research report.

Read More