Emkay Global Financial's report on Canara Bank
Canara Bank reported a strong beat on PAT at Rs20bn in Q1 (est.: Rs15bn), driven by higher treasury income, PSLC fees and lower LLP, partly offset by higher NPI (mainly on Future Group/Bajaj Hindustan and a telecom co). Treasury losses were relatively lower at Rs3.6bn, and there could be Rs1-1.5bn more losses, if the yield rises in Q2. Overall credit growth surprised positively - up 15% yoy/6% qoq on strong corporate, RAM and gold loan growth. However, NIMs were flat at 2.8% due to a moderation in loan yields as growth was mainly driven by the corporate book, partly offset by better investment yields. The bank has guided for double-digit credit growth and stable-to-better margins. Asset quality continued to improve in Q1, with the GNPA ratio down 53bps qoq to 7%, helped by lower slippages, while the restructured book declined by 20bps to 2.6% of loans. The relapse rate in the restructured book has been 10%, and the bank expects the overall relapse rate to be 18-20% in restructured book. Slippages in the ECLGS book remain low at 3%, and thus do not pose any risk. NARCL transfers in Q2 should further reduce NPAs.
Outlook
We expect a gradual improvement in the bank’s RoA/RoE to 0.6-0.7%/12-15% over FY23- 25E from 0.5%/11% in FY22, driven by better growth and lower LLP. That said, we believe the bank will need to shore up capital, given CET 1 is sub-optimal at 10.5%. Retain Buy with a TP of Rs282, based on 0.7x FY24E ABV and subs/investment value of Rs23.
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