Up to 42% upside? This Jhujhunwala stock is among D-Street’s bullish bets

NEW DELHI: Canara Bank shares have fallen for the second straight session on Tuesday, even as a surprise treasury performance led to an earnings beat in June quarter.

A few analysts noted that the PSU lender has been reporting consistent growth in net profit for the last eight quarters and that June quarter numbers were a beat on several counts. They find the prevailing valuations inexpensive and have price targets of up to Rs 316 on the banking stock, which suggests a potential 42 per cent upside on the counter.

Canara Bank is trading off between growth and margins that is expected to bode well in the near term, said LKP Securities, which has a target of Rs 316 on the scrip.

"Moreover, the CET – 1 is at par now and we believe the bank may raise capital from stake sales of AMC, HFC and insurance companies. We believe the hurdles from merger with Syndicate Bank are long behind us and the bank will witness gradual improvement in profitability. With an inexpensive valuation of 0.6 times price-to-book value per share, we recommend 'buy' on the stock," the brokerage said.

Seasoned investor Rakesh Jhunjhunwala held 1.96 per cent or 35,597,400 shares in this stock as of June 30, the same as the March quarter.

The bank reported a 71.79 per cent YoY rise in net profit at Rs 2,022 crore compared with Rs 1,177 crore in the same quarter last year.

The PSU bank reported a 10.5 per cent growth in NII for the quarter at Rs 6,785 crore from Rs 6,160 crore in the year-ago quarter. Non-interest income was up 24.55 per cent YoY to Rs 5,175 crore from Rs 4,155 crore.

Gross non-performing assets fell to 6.98 per cent from 7.51 per cent in March quarter and 8.5 per cent in the year-ago quarter. provisions for the quarter however rose to Rs 4,584 crore from Rs 4,536 crore in March and Rs 4,304 crore in the year-ago quarter.

Net interest margin (NIM) for the quarter came in at 2.78 per cent , down from 2.93 per cent in March quarter, but higher than year-ago's 2.71 per cent.

Motilal Oswal said Canara Bank operating performance was steady, with NII growth of 10.5 per cent YoY. Healthy treasury gains and traction in fee income led to 13 per cent beat in total revenue, it said.

"Fresh slippages moderated, while healthy recoveries and upgrades along with higher write-offs led to improvements in asset quality ratios," it said adding "SMA overdue declined to 1.29 per cent from 1.53 per cent QoQ, while the restructured portfolio improved 36 bps to 2.4 per cent of loans." This brokerage has a target of Rs 300 on the stock.

On Tuesday, the scrip fell per cent to Rs 222.10. Motilal's target suggests a 35 per cent upside over this price.

Emkay Global Canara Bank reported a strong beat on profit after tax, driven by higher treasury income. Treasury losses were relatively lower, it said, noting the asset quality continued to improve in June quarter.

The brokerage expects a gradual improvement in the bank's return on assets (RoA) to 0.6-0.7 per cent and return on equity (RoE) to 12-15 per cent over FY23-25, driven by better growth and lower LLP. That said, Emkay believes the bank will need to shore up capital, given CET 1 is suboptimal at 10.5 per cent Rs 282.

Morgan Stanley, meanwhile, maintained its overweight stance on Canara Bank. It said that the growth appears less profitable and the loan growth was strong. "Non-core earnings were strong and drove PAT beat," the broker added.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)