Shares of Canara Bank traded in the red on July 26 a day after the public sector lender reported its June quarter scorecard. The stock ended 1.42% lower at ₹221.50.
The bank's net profit for Q1FY23 stood at ₹2,022 crore against a net profit of ₹1,177 crore for the same quarter last year.
The bank's gross non-performing assets (GNPA) ratio stood at 6.98% in Q1FY23 against 7.51% in Q4FY22 and 8.50% in Q1FY22.
Net non-performing assets (NNPA) ratio stood at 2.48% in Q1FY23 against 2.65% in Q4FY22 and 3.46% in Q1FY22.
CASA Deposits increased by 8.76% while retail term deposits grew by 6.15% in the said quarter.
Return on assets (RoA) improved to 0.65% for Q1FY23 against 0.41% for Q1FY22 and return on equity (RoE) improved to 16.33% for Q1FY23 against 11.53% for Q1FY22.
Brokerages remain positive
Brokerage firm Motilal Oswal Financial Services maintained a 'buy' call on the stock of Canara Bank with a target price of ₹300, citing a steady operating performance.
"We estimate a return on assets (RoA) and return on equity (RoE) of 0.8% and 13.8%, respectively, by FY24," said Motilal Oswal.
The brokerage firm highlighted that Canara Bank reported a steady operating performance supported by healthy loan growth and improvement in asset quality while NII growth was soft as margin contracted 15bp QoQ. However, management expects to recoup this as the benefit of the rising rate will flow through in the coming quarters.
The brokerage firm further added that the bank's loan growth was led by the corporate segment and the outlook for the rest of the year is encouraging as Canara Bank aspires for a 15% growth in FY23. Slippages were flat sequentially, despite the downgrade of a lumpy corporate account. Asset quality ratios improved further underpinned by higher recoveries and upgrades. Declines in SMA overdue and restructured portfolio provide incremental comfort on asset quality trends.
LKP Securities believe the hurdles from Canara Bank's merger with Syndicate Bank are long behind and the bank will witness gradual improvement in profitability with FY24E RoA and RoE of 1.2% and 18% respectively.
The brokerage firm has a buy call on the stock with a target price of ₹316, citing Canara Bank has been reporting consistent growth in net profit for the last eight quarters.
"We believe Canara Bank is trading off between growth and margins which is expected to bode well in the near term. Moreover, the CET – 1 (10.49%) is at par; thus we believe the bank may raise capital from stake sales of AMC, HFC and insurance companies," said LKP Securities.
"Factoring in term capital infusion, we expect the bank’s loan book to fatten cautiously at a CAGR of about 10% over FY22-24E, led by RAM and corporate book growth. In our opinion, the bank’s credit cost shall normalise further by FY23E and estimated return ratio RoA and RoE of 1.2% and 17.8%, respectively, in FY24E. We value the standalone entity with 0.6 times FY24E BVPS ( ₹527) and arrive at a target price of Rs316," the brokerage firm added.
Emkay Global Financial Services also has a buy call on the stock with a target price of ₹282.
The brokerage firm expects a gradual improvement in the bank’s RoA and RoE to 0.6-0.7% and 12-15%, respectively, over FY23-25E from 0.5% and 11% in FY22, driven by better growth and leverage and lower LLP.
Emkay believes the bank will need to shore up capital, given CET 1 is suboptimal at 10.5%.
Higher-than-expected NPA formation, a slower growth trajectory, and a sharp rise in G-Sec yields which could lead to MTM losses in the investment book are the key risks for the bank, Emkay pointed out.
Disclaimer: The views and recommendations made above are those of broking firms and not of MintGenie.