LKP Securities
Target: ₹210
CMP: ₹158.30
In Q3FY21, the bank reported a strong result with a PAT of ₹700 crore owing to treasury gains (other income grew 35 per cent sequentially). Contrasting other PSBs, Canara Bank’s pro-forma GNPA declined sequentially to 9 per cent v/s 9.8 per cent in Q2FY21 driven by recoveries and write-offs.
The restructuring book is estimated to be 3.5 per cent of the loan book. The bank remains upbeat of recovery from lumpy corporates in the next few quarters. Moreover, the bank has raised capital which has resulted in the CET -1 of 8.9 per cent (at par); thus, we believe the government may infuse capital via recapitalisation.
The bank may raise capital from stake sale in AMC, HFC and insurance. We believe the hurdles from merger (with Syndicate Bank) are behind and the bank shall witness gradual improvement in profitability with FY23 ROA/ROE of 0.3 per cent/7 per cent.
Factoring near-term capital infusion, we expect the bank’s loan book to fatten cautiously at CAGR of 8 per cent over FY21-23, led by retail book growth.
Given its inexpensive valuation (0.6x PBVPS), we recommend Buy.
We value the standalone entity at 0.6xFY22E BVPS (₹349) and arrive at a target price of ₹210.
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