Buy Canara Bank Ltd For Target Rs.150 Prabhudas Liladhar Capital Ltd
Comfort on NIM/LDR may cushion earnings
CBK saw steady quarter as core revenue (NII+fees) was in-line and net slippage was lesser at 24bps (PLe 64bps). Loan growth at 4.7% QoQ was superior to peers and was broad based. While reported NIM at 2.5% has been lowest among peers; it has likely bottomed out as incremental lending is happening at higher than avg. yields while there is more scope to reduce deposit cost. One-time ECL impact could be ~10% of equity which the bank would absorb over 2 years (RBI allows 5 years); sustainable impact was guided at <10bps. LDR is comfortable at ~79%. We maintain multiple at 1.0x on Mar’28 ABV and keep TP at INR 150. Upgrade to ‘BUY’ from ‘ACCUMULATE’.
Core revenue in-line. Miss core PPoP; asset quality improves:
NII was INR 102.2bn (PLe INR 102.4bn) with loan growth and NIM (calc.) meeting expectations at 19.0% YoY & 2.30%. Reported NIM was down 2bps QoQ to 2.52%. Deposit accretion was 9.8% YoY (PLe 9.9%). LDR increased to 79.3% (77.8% in Q4’26). Other income was higher at INR 67.3bn (PLe INR 56.6bn) due to treasury; TWO recovery was 14% lower. Opex was 3.4% above PLe due to higher staff cost and other opex. Core PPoP at INR 60.3bn was 7.5% below PLe. Asset quality improved as GNPA was down 27bps QoQ to 1.57% (PLe 1.70%). Slippage was lower at INR 18bn (PLe INR 27.1bn); recoveries were better at INR 11.5bn (PLe INR 9.9bn). Provisions were in-line at INR 20.8bn (PLe INR 20bn). Core PAT was 13.6% below PLe at INR 29.3bn; PAT was INR 48.6bn.
Loan growth was broad based:
Loan growth was healthy at 4.7% QoQ led by: corporate 4.3%, retail 7.7% and SME 7%. Advances of INR 180bn are eligible under ECLGS 5.0, of which INR 100bn have been disbursed; INR 50-60bn would be disbursed in upcoming quarters. Gold portfolio is INR 2.6trn, split between INR 1.5trn agri gold & INR 1.1trn in retail gold, with LTV of 60-65%. Bank expects to mobilize around USD 2.5bn through FCNR(B), ECB and OFCB during FY27 having already secured USD 775mn. Management had guided credit growth of 11-12% for FY27 in Q4’27, which the bank can surpass
NIM has likely bottomed out:
Incremental lending is happening at yields better than average, which could support NII/NIM while bulk deposit repricing remains favorable, with maturing deposit cost at ~30bps higher than fresh mobilization every month. Hence NIM may have bottomed; we raise NIM for FY27/28E by 5bps. Bank maintains NIM guidance of 2.5-2.6%. One-time ECL impact may be INR 120bn which the bank would absorb over 2 years (RBI allows 5 years); sustainable impact was guided at <10bps.
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SEBI Registration number is INH000000933
