Broker’s Call: Canara Bank (Hold)

Target: 350 rupees

CMP: INR 302.80

Canara Bank reported a strong beat on PAT at Rs. 3,170 crores (against our estimate of Rs. 2,830 crores), led by healthy margins (3.07 per cent) and recovery from non-performing loans (Rs. 2,170 crores).

Credit growth slowed to 18 percent yoy/2 percent qoq, which the bank expects will be more moderate in FY24, given the overall slowdown. However, the bank expects profit margins to hold up in FY24 (FY23: 2.95 percent), as the repricing of MCLR will largely offset the increase in CoF.

Separately, the bank disclosed total ECL provisioning requirements of Rs 42,000 crore (5 per cent loans / 7 per cent RWA), based on RBI draft guidelines, which appear higher than expected. Given the higher capital hit to Canara Bank and other utilities, even on a sporadic (5 year) basis, we believe standards could be deferred/relaxed.

We cut our dividend by 1-8 percent for FY24-25 and provided our FY26 estimates, taking into account the higher level of limited income. We’ve also lowered our price target to €350 (versus €385/share previously), based on our 0.8x Mar-25E ABV and sub/investment value of €27.

We have downgraded the stock to a hold from a buy.