Emkay Global Financial Services' report on Canara Bank
Revenues were in-line with estimate at Rs38bn, however 9% higher than estimated opex resulted into 8% lower than expected PPP of Rs17.3bn (declined 8% yoy). PBT was 12% lower than expectation but earnings was 8% higher than estimated at Rs6.1bn (flat yoy) on account of lower tax rate of 15% (expectation of 30%)
Stress additions remained high with net slippages of Rs20.7bn (2.7% annualized net slippage ratio v/s 2% in 3QFY15) and fresh restructuring of Rs34bn (1% of loans).GNPLs and NNPLs in absolute terms increased by 23% and 16% qoq respectively. Outstanding standard restructured loan stood at 6.9% of loans. NNPL/Networth and net stress loans/Networth stood at 33% and 118% respectively
Other highlights: (1) loan growth remained modest at 10% yoy, (2) NIMs were weak at 2.2% (flat qoq), (3) CASA ratio declined marginally yoy to 24% and (4) CET1 was 7.4%
We downgrade our EPS estimate by 20% and 18% for FY16/17 respectively as (1) core operations remained weak, (2) stress additions were high and (3) recent equity infusion was below book value. Low core tier-1 of 7.4% (7.8% post recent dilution) and weak return profile would necessitate CBK to consolidate its balance-sheet for some time. This will also keep RoEs sub-optimal (FY15-17e) at 10/12%.
Asset-quality issues have plagued the bank’s RoE in FY13-15; we estimate it to rise from 10.8% in FY15 to 12% in FY17E, led by a modest recovery in business growth and gradual improvement in credit cost in FY17E. Capital infusion, if below book value, would contain RoE improvement. Maintain Reduce for the target price of Rs 320", says Emkay Global Financial Services research report.
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