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Canara Bank reported a healthy PPOP growth amounting to INR 73bn (17% YoY, 4% QoQ) aided by one-offs in other income (7% YoY, 20% QoQ) with recoveries in two corporate accounts amounting to INR 6-6.5bn even as NII was lower than expectations (23% YoY, flat QoQ) on account of slower loan growth. Deposits saw moderation in growth (+8.5% YoY, +1.4% QoQ) on account of sluggish growth in TD (11% YoY, flat QoQ) with CASA at 31.1% (+87bps). Asset quality metrics continued to improve with GNPL/NNPL at 5.35%/1.73% (- 54bps/-23bps QoQ) and increased PCR at 69%. Loan growth remained soft this quarter (+18% YoY, +1.7% QoQ) with slow domestic growth (+15% YoY, +2% QoQ) and degrowth (50% YoY, -10%QoQ) in overseas book. NIMs remained stable at 3.07% (+2 bps QoQ) and are expected to sustain at ~3.05% on account of expected repricing of assets. We expect CBK’s earnings to be driven by a) healthy loan growth momentum, b) stability in margins and c) lower credit costs leading to improvement on return metrics leading to RoA/RoE of 0.96%/18.5% by FY25e. Maintain BUY with revised TP of INR 371 (valuing the core bank at 0.8x FY25E BVPS).

* Subdued loan and deposit growth: Loan growth remained soft this quarter (+18% YoY, +1.7% QoQ) with slow domestic growth (+15% YoY, +2% QoQ) which comprises of more of 98% of the advances; whereas overseas book witnessed degrowth (50% YoY, - 10%QoQ). RAM segment reported growth (+13% YoY, +3% QoQ) whereas wholesale segment witnessed a muted growth (21% YoY, 0.6% QoQ). Mgmt. expects loan growth to be between 10-10.5%. Deposits saw moderation in growth (+8.5% YoY, +1.4% QoQ), domestic deposits (93% of total deposits) growing at +6.5% YoY/ +1.4% QoQ. Term deposit growth remained sluggish (11% YoY, flat QoQ) on the back of slower retail TD (5% YoY, flat QoQ) with CASA at 31.1% (+87bps). Management highlighted that they are willing to ramp up there CASA growth to support deposit growth in the near term. We have built CAGR loan growth of 14% for FY24-25e.

 * Strong PAT growth; supported by one-offs in other income: CBK reported a PPOP growth amounting to INR 73bn (17% YoY, 4% QoQ) aided by one-offs in other income (7% YoY, 20% QoQ) with recoveries in two corporate accounts amounting to INR 6-6.5bn even as NII was lower than expectations (23% YoY, flat QoQ) on account of slower loan growth. NIMs remained stable at 3.07% (+2 bps QoQ) on account of faster repricing of asset yields; 49% are MCLR based of which 40-42% loans are expected to be repriced in near term leading to mgmts. expectations of NIMs to sustain at ~3.05%. Return metrics are expected to see improvement aided by stable NIMs, lower credit costs at ~120bps and stable opex. CBK also remains well capitalised with CAR at 16.68% and PCR at 69% with expectations of no requirements of capital raise this financial year. We build credit cost of 121bps. ? Valuation and

* Valuation and view: We expect CBK’s earnings to be driven by a) healthy loan growth momentum, b) stability in margins and c) lower credit costs leading to improvement on return metrics leading to RoA/RoE of 0.96%/18.5% by FY25e. Maintain BUY with revised TP of INR 371 (valuing the core bank at 0.8x FY25E BVPS).

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