Canara Bank reported a robust set of numbers for the June quarter, led by a strong rise in net interest income and a fall in provisions. The state-owned bank in an exchange filing on Monday reported its highest-ever quarterly net profit of ₹3,535 crore, a jump of 75% YoY.
The net interest income of the bank grew by 28% YoY to ₹8,666 crore in the June quarter, while the net interest margin of the bank came in at 3.05% in Q1 as against 2.78% in the same quarter of the previous fiscal.
The non-interest income stood at ₹4,819 crore, reflecting a fall of 7% YoY due to a drop in treasury income to ₹536 crore in Q1FY24 from 1,849 crore in Q1FY23, a drop of 71% YoY.
The pre-provision operating profit (PPOP) stood at ₹7,604 crore for the June 2023 quarter, showing a growth of 15.11% YoY. The bank's provisions came down to ₹4,069 crore from ₹4,584 crore in Q1FY23. The provision coverage ratio of the bank improved to 88.04% as of June 2023 from 84.51% in the same period last year.
On the business front, total loans grew 3% QoQ (up 15% YoY), led by both corporate (up 3% QoQ) and the RAM segment (up 3% QoQ), within which, the agri book grew 4.4% QoQ.
As for deposits, there was a 6.6% YoY growth and a slight 1.1% QoQ increase. However, there was a decline of 1% QoQ in CASA (Current Account Savings Account) deposits, resulting in a 48 basis points QoQ moderation in the CASA ratio, which now stands at 33%. On the other hand, term deposits recorded a significant QoQ surge of 66%.
"The bank reported a steady performance as earnings beat estimates, led by higher other income (QoQ) and lower provisions. Margins stood broadly flat, while asset quality witnessed a steady improvement," said brokerage firm Motilal Oswal.
Loan growth was primarily led by corporate, retail, and agri segments and the outlook remains positive. While slippages and SMA book increased sequentially, there has been a significant improvement in asset quality ratios overall, it noted.
The brokerage raised its estimates marginally and expects the bank to deliver FY25E RoA and RoE of 1.1% and 17.2%. It reiterated the 'buy' rating on the stock with a price target of ₹425 apiece. This reflects an upside of 28% from the stock's previous closing price of ₹332 apiece.
Likewise, Kotak Institutional Equities also maintained its 'buy' recommendation on the stock following the bank's Q1FY24 performance. The brokerage has raised its target price on the stock to ₹400 from ₹370 earlier, valuing the bank at 0.85X June 2025E adjusted book with RoEs of 15–17% in the medium term.
Slippages are likely to stay at modest levels, and provisions will likely decline after the bank has built up adequate PCR. The healthy trend on bad debt recoveries is likely to continue for some more time given the large bad asset pool carried by the bank, the brokerage said.
Along with this, a high financial leverage will ensure the bank delivers mid- to high-teen RoEs over the medium term. Business momentum seems strong as the bank is delivering healthy mid-teen growth, it added.
13 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.