Broker’s call: Canara Bank (Buy)
PL Capital
Canara Bank reported a strong quarter with impressive performance across the board. Core Provision Provisions (PPoP) saw a 13.3% increase, driven by a higher Net Interest Margin (NIM) and increased fees and operational expenses. Loan growth remained robust at 6.5% quarter-over-quarter, excluding FCNR(B) related loans, with domestic credit growth primarily fueled by corporate and agriculture sectors.
Net Interest Margin (NIM) is projected to remain stable, buoyed by rising corporate and agricultural loan yields, the upcoming festive season that may boost retail credit demand, a low Liquidity Withdrawal Ratio (LDR) of 80%, and effective expected repricing of Eligible Base Lending Rates (EBLR). The bank anticipates continued loan momentum, as a significant corporate pipeline of ₹47,000 crore and festive season demand are expected to bolster retail lending.
FCNR(B) deposits of $5.8 billion helped Canara Bank avoid raising wholesale funding of ₹30,000-35,000 crore, which was partially offset by narrow margins of 40-50 basis points on FCNR(B) related advances. Lower net slippages and a reversal in Non-Performing Assets (NPA) provisions resulted in reduced overall provisions at ₹1,780 crore (prior to ₹2,220 crore).
Core Profit After Tax (PAT) was 26.6% higher than the previous estimate at ₹4,740 crore, while reported PAT stood at ₹5,170 crore. One-time provisions for Economic Capital Losses (ECL) are estimated between ₹12,000-15,000 crore, expected to be absorbed over two years, supported by strong capital buffers (CET-1: 12.8%). The brokerage aims to raise NIM by 7-6 basis points and core PAT by an average of 6% for FY27/28E.
The target price is raised to ₹160 from ₹150 as of September 28 ABV, and the recommendation remains 'Buy.'
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