Buy Canara Bank Ltd for the Target Rs.160 by Motilal Oswal Financial Services Ltd
Steady quarter; maintains 1% RoA guidance Higher other income offset by higher provisioning
* Canara Bank (CBK) posted 1QFY27 standalone PAT of INR48.6b (up 2% YoY/ 8% QoQ, 10% beat on MOFSLe), led by strong traction in other income, partly offset by higher-than-expected provisions.
* NII grew 13% YoY/4% QoQ to INR102.2b (broadly in line). Its margin declined by 2bp QoQ to 2.52% vs. our est. of 2.57%. The bank has maintained its NIM guidance of 2.5-2.6% for FY27.
* The loan book grew 19% YoY/5% QoQ to INR12.77t. The bank continues to maintain its loan growth guidance of 11-12%. Deposits grew 11.6% YoY/ 2.7% QoQ to INR16.12t.
* Slippages declined to INR18b (INR28b in 4QFY26) as asset quality improved across segments. GNPA/NNPA ratios improved 27bp/7bp QoQ to 1.57%/ 0.36%. PCR stood at 77.1%. CBK will make additional provisions of INR100- 120b for ECL transition, which will have an impact of 1.20-1.25% on CRAR.
* We marginally tweak our estimates for FY27E/28E and expect CBK to deliver FY27E RoA/RoE of 1.01%/17.9%. Reiterate BUY with a TP of INR160 (based on 1.1x Mar’28E ABV+ INR13 for subs)
Business growth steady; asset quality ratios improve
* 1Q PAT rose 2% YoY/8% QoQ to INR48.6b (10% above MOFSLe), aided by strong traction in other income, partly offset by higher-than-expected provisions.
* NII grew 13% YoY/4% QoQ to INR102.2b (broadly in line). Margin fell 2bp QoQ to 2.52% (est. 2.57%). CBK retains FY27 NIM guidance at 2.5-2.6%.
* Other income improved 39% QoQ/fell 5% QoQ to INR67.3b (24% above MOFSLe) on the back of strong PSLC and treasury income. Total revenue thus rose 16% YoY/5% QoQ (9% beat).
* Operating expenses increased by 5% QoQ (up 11% YoY) to INR83.1b (4% higher than MOFSLe) owing to INR3b of PLI bonus in opex. C/I ratio decreased to 49.0% (vs. 53.8% in 4QFY26). PPoP thus rose 1% YoY/28% QoQ to INR67.6b (14% beat).
* The loan book grew 19% YoY/4.7% QoQ, led by robust growth in the retail (33% YoY/7.7% QoQ) and MSME segments (15.1% YoY/6.9% QoQ). The gold loan book stood at INR2.59t, in which agri. gold loan stood at INR1.5t.
* Deposits grew 11.6% YoY/2.7% QoQ to INR16.12t. CASA deposits grew 10.6% YoY/2.1% QoQ. The CASA ratio stood at 29.7%, while the CD ratio increased to 79.3% (vs. 77.8% in 4QFY26).
* Provisions came in at INR20.8b (13% higher vs. MOFSLe), up 110% QoQ and down 12% YoY. Slippages declined to INR18b (INR28b in 4QFY26), with asset quality improving across segments. GNPA/NNPA ratios improved 27bp/7bp QoQ to 1.57%/0.36%. PCR stood at 77.1%.
* Reported credit costs declined to 0.49% from 0.59% in 4QFY26. SMA book (INR50m and above) increased to 0.58% from 0.46% in 4QFY26
Valuation and view- Maintain BUY with a TP of INR160
CBK reported a steady quarter with stable margins and strong other income, offset by higher provisioning even as asset quality improved. NIMs are expected to be range-bound at 2.5-2.6% for FY27. Loan growth was healthy, driven by retail and MSME loans. Deposit growth lags credit growth, while focus remains on improving the granularity of deposits under the new MD. CBK maintains its loan growth guidance of 11-12%. Asset quality for the bank improved, with lower slippages and NPAs across asset classes. The bank shall be making additional provisions of INR100- 120b for ECL transition, which shall have an impact of 1.20-1.25% on CRAR. The bank maintains its RoA guidance of 1%. We marginally tweak our estimates for FY27/28 and expect CBK to deliver FY27E RoA/RoE of 1.01%/17.9%. Reiterate BUY with a TP of INR160 (based on 1.1x Mar’28E ABV+ INR13 for subs).
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