Dolat Capital is bearish on Canara Bank has recommended sell rating on the stock with a target price of Rs 80 in its research report dated August 07, 2020.
Dolat Capital's research report on Canara Bank
Canara bank reported NII and PPoP growth of 21% and 32% YoY respectively on an amalgamated basis, driven by muted slippages, higher treasury gains and sharp decline in cost of funds. Moratorium levels stood at 22% in June against 17% in May for standalone Canara Bank. The amalgamation resulted in sharp erosion in net worth with CET1 ratio declining by 330 bps QoQ to 6.2% for Syndicate bank and 8.4% for the merged entity as of April 1,2020. Core equity ratio further declined to 8.15% in 1QFY21 for the amalgamated entity. We remain concerned over immediate challenges on capital and integration front, apart from asset quality worries. Moreover, weak operating metrics (PPoP/assets at 1.4%) and low provision buffers (0.2% of advances) provided little comfort.
We revise our rating recommendation from REDUCE to SELL post the sharp deterioration in networth and ABV with a revised TP of Rs80, valuing the bank at an unrevised multiple of 0.6x of FY22E P/ABV against ROA/ROE of 0.3%/8% for FY22E.
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