Financial Daily from THE HINDU group of publications
Sunday, Apr 20, 2003
Financial Daily from THE HINDU group of publications Sunday, Apr 20, 2003 |
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Investment World
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Stocks Money & Banking - Stocks Markets - Recommendation Canara Bank: Book profits Suresh Krishnamurthy
INVESTORS in the stock of Canara Bank can consider booking profits and reducing their exposure to the stock. The stock price of Canara Bank, which listed its stock in December 2002, has appreciated sharply in the recent past. It has delivered returns of 151 per cent to investors in the initial public offer of the Bank. Canara Bank is one of the larger banks in the country. It can also boast of a few positive features such as comfortable capital adequacy and low incidence of non-performing assets. At less than 4 per cent, the proportion of non-performing assets is one of the lowest among large banks in the country. However, the stock's valuation is now relatively higher than that of a few other banks. The stock's dividend yield is marginally lower than that of the yield on stocks such as Punjab National Bank and State Bank of India. The price to book value ratio of the share is also higher than that of Punjab National Bank and State Bank of India. At the ruling price, the required growth in dividends over the next couple of years is high on a relative basis. However, its ability to pay dividends will be constrained by the need to provide for the losses of a subsidiary. In addition, Canara Bank has booked a larger proportion of the profits on government securities compared to banks such as Punjab National Bank and State Bank of India. The cost of funds of Canara Bank is also higher than that of other large banks. Besides, Canara Bank has an exposure of around Rs 350 crore to Dabhol Power Company. These factors may contribute to relative under performance of the stock. In this backdrop, investors can liquidate some of their holdings in the stock of Canara Bank and book profits.
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