Buy Canara Bank Ltd for the Target Rs 150 by Emkay Global Financial Services Ltd
Canara Bank (CBK) reported a largely in-line PAT of Rs51.7bn/ROA of ~1.1%, supported by higher NII, in-line opex, and lower-than-expected provisions, partly offset by lower other income. Further, CBK delivered strong credit growth yet again, of 20% yoy, led by broad-based growth across segments as well as $3.2bn FCNR B leverage, while maintaining a strong corporate pipeline of Rs500bn. Deposit growth stood at 11%, supported by Rs550bn of FCNR(B) mobilization and modest CASA growth, while bulk deposits were stable qoq as a portion of FCNR(B) funds was used to replace existing liabilities. NIM was stable at 2.55%, with Management expectation of it sustaining on the back of the recent rate hike. Asset quality continued to improve, while ECL provisioning requirement is estimated at Rs120-150bn (~0.9-1.1% of loans), up by ~Rs30bn amid elevated bond yields and potential MTM losses. We largely retain our earnings estimates and expect the bank to deliver 1% ROA over FY27-29E. We maintain BUY on CBK and TP of Rs150, valuing the standalone bank at 0.9x Sep28E ABV and subsidiaries/investments at Rs11/share
Strong credit growth sustains; margin expected to meet guidance range
CBK continued to deliver strong credit growth of 20.4% yoy/6.5% qoq, driven by broadbased growth across RAM and corporate segments, alongside $3.2bn of FCNR(B)-led leverage. The bank has a healthy large- and mid-corporate lending pipeline of Rs470– 500bn across green energy, battery energy storage, power evacuation infrastructure, and data centers, along with a few HAM projects. However, Management highlighted the intensifying competition in gold lending, with large NBFCs expanding their presence. Deposit growth stood at 11.1% yoy/5.3% qoq, supported by Rs550bn of FCNR(B) mobilization and modest CASA growth; bulk deposits were stable qoq as a portion of FCNR(B) funds was used to replace existing liabilities. NIM improved marginally to 2.55%, backed by strong loan growth and stable deposit costs, with Management expecting it to sustain at current levels, aided by the recent rate hike.
Headline asset quality continues to improve
Gross slippage was stable at 0.7% of loans (Rs19.1bn), partly offset by higher write-offs and recoveries, leading to 24bps improvement in GNPA at 1.3%. NNPA also improved, to 0.3%, while specific PCR marginally increased to 77.9%. Further, the overall SMA book stands at 0.5%. Management expects asset quality to be stable and recoveries to stay healthy in 2H. ECL provisioning is estimated at Rs120-150bn (0.9-1.1% of loans), up by ~Rs30bn due to elevated bond yields and potential MTM losses.
We retain BUY on the stock
We tweak our earnings estimates and expect the bank to deliver 1% ROA over FY27-29E. We maintain BUY on CBK and TP of Rs 150, valuing the standalone bank at 0.9x Sep-28E ABV and subsidiaries/investments at Rs11/share. Key risks: Lower-than-expected growth/margins, ECL implementation.
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