Hold Canara Bank; target 186, SPA research

SPA research report on Canara Bank Canara Bankreported disappointing set of numbers with ~41% QoQ increase in GNPA led by 6.5% annualized slippages of INR 54.02bn (INR 33.05bn was due to AQR). NII declined by 6.5% YoY on back of 6.3% credit growth and 23bps decline in NIM. Outlook on slippages for Q4FY16E remains challenging as the bank recognizes rest of the slippages arising due to the AQR. Going ahead, we would like to see improvement in return ratios as the bank focuses on improving its liabilityfranchisee, growing its non corporate lending and containing slippages. On back of surge in NPAs and lower than estimated operating performance, we cut our estimates sharply and change our recommendation to HOLD from BUY with lower TP of INR 186, based on 0.85x FY17E ABV.Canara Bank reported weak performance with earnings declining 87% YoY on the back of sharp rise in NPLs as the bank partly recognized the NPLs directed by RBI. While outlook on slippages for Q4FY16E remains challenging as the bank recognizes rest of the slippages arising due to the AQR, there is one solace that slippages outside AQR was below average. In Q4FY16, revenue growth wouldcome under pressure as the bank has a high share of loans to distribution companies, which would be out of their books due to UDAY scheme. On the positive side, there would be decline in restructured loans for the bank resulting into lower provisioning as RBI has asked for additional 10% provisioning for restructured accounts. Going ahead, we would like to see improvement in returnratios as the bank focuses on improving its liability franchisee, growing its non corporate lending and containing slippages. On back of surge in NPAs and lower than estimated operating performance, we cut our estimates sharply and change our recommendation to HOLD from BUY with lower TP of INR 186, based on 0.85x FY17E ABV.  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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