Buy Canara Bank; target of Rs 410: SPA The Financial

SPA The Financial's report on Canara BankCanara Bank reported mixed set of numbers with below estimate NII and credit growth but improvement in NIM and lower slippages. NII grew by ~12% YoY on back of ~4% credit growth and 12bps improvement in NIM. Slippages, though contained, continue to be high (2.7% of advances) despite absence of any big ticket default. Pre-provisioning operating profit (PPOP) increased by 19.6% YoY on back of 18.5% increase in other income. Due to ~7% YoY higher provisioning, PCR improved by 113/ 79bps YoY/QoQ to 59.81%. We believe that the banks focus on improving its liability franchisee, growing its non corporate lending, controlling slippages and absence of any surprises on asset quality despite new MD & CEO coming in, should help the bank in achieving its objective of strengthening its bottomline in a capital efficient way. We maintain our BUY rating on the stock with revised target price of INR 410 (due to book value dilution post capital infusion), based on 0.85x FY17E ABV.Outlook & ValuationWhile operating performance of the bank is showing normalcy, slippages continue to be high at ~3% of advances, even though there was no big ticket default during the quarter. Management has guided that in 2HFY16, they are going to consolidate its topline and strengthen its bottomline by managing fresh slippages. The bank has set internal target of bringing slippages to ~2% and GNPA to ~4% by FY16E. The management is also taking a relook at its nine subsidiaries/JVs in which it has ~INR 17bn investment. Regarding CanFin Home, the company clarified that it is considering either increasing or decreasing its 43.5% stake to 51% or 31% respectively. Decreasing its stake to 31% would fetch the company ~INR3bn. We believe that the banks focus on improving its liability franchisee, growing its non corporate lending, controlling slippages and absence of any surprises on asset quality despite new MD & CEO coming in, should help the bank in achieving its objective of strengthening its bottomline in a capital efficient way. We maintain our BUY rating on the stock with revised target price of INR 410 (due to book value dilution post capital infusion), based on 0.85x FY17E ABV, says SPA The Financial research report.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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