EUR 120.00 For Business Accounts Only

MOSL: CANARA BANK: Loan growth steady; treasury gains support earnings (CBK IN, Mkt Cap USD5.1b, CMP INR225, TP INR300, 34% Upside, Buy)

Asset quality continues to improve

• Canara Bank (CBK) reported a steady operating performance with NII growth of 10% YoY (7% miss). Healthy treasury gains and traction in fee income led to 13% beat in total revenue (16% YoY). Margin contracted 15bp QoQ to 2.8% while PPoP grew 21% YoY (18% YoY rise in Core PPoP).
• On the business front, CBK witnessed strong demand momentum as it clocked 6% QoQ/15% YoY growth in advances. Growth was driven by the corporate segment with a sharp jump of 8.9% QoQ. Thus, the share of corporate in mix improved 160bp to 46.6%. Deposits, conversely, grew 3% QoQ led by term deposits as CASA deposits saw a sequential decline of 2%.
• Fresh slippages moderated 17% QoQ to INR39.5b, while healthy recoveries and upgrades of INR22.3b along with higher write-offs worth INR26.4b led to improvements in asset quality ratios. GNPA/NNPA improved 53bp/17bp QoQ to 6.98%/2.48%, respectively.
• Further, SMA overdue declined to 1.29% from 1.53% in 4QFY22, while the restructured portfolio improved 36bp to ~2.4% of loans. We raise our PAT estimates by 14%/16% for FY23/24, respectively, to account for higher other income and loan growth. We expect CBK to deliver FY24E RoA/RoE of 0.8%/13.8%. Retain BUY with a TP of INR300 (based on 0.8x FY24E ABV).

Surprising treasury performance led to earnings beat; PCR stable at 66%

• CBK reported a PAT of INR20.2b (+72% YoY) fueled by strong treasury gains. NII grew 10% YoY (7% miss), aided by healthy 15% YoY loan growth while margin contraction of 15bp QoQ acted as a drag.
• Other income surged 25% YoY due to robust performance in treasury and traction in fee income. Total revenue, thus, grew 16% YoY (13% beat).
• Operating expenses rose 11% YoY due to rise in other expenses as employee cost was stable. PPoP, thus, grew 21% YoY to INR66.1b (14% beat).
• On the business front, demand for loans witnessed strong momentum with a sharp growth of 8.9% QoQ in corporate segment. Share of corporate in mix thus improved 160bp to 46.6%.
• Deposits saw weaker trend with a growth of 9% YoY/3% QoQ. CASA deposits declined 2% QoQ, while CASA ratio stood at 34.3% (-160bp QoQ).
• Fresh slippages moderated 17% QoQ to INR39.5b while higher recoveries, upgrades and write offs aided 53bp/17bp decline in the GNPA/NNPA ratios to 6.98%/2.48%, respectively. PCR remained stable at 66%.

 

Highlights from the management commentary

• Management is confident of sustaining growth in advances led by a broad-based performance across all segments
• CASA deposits should see a double-digit growth in 2QFY23 after a soft 1Q.
• NIMs should improve as CBK benefits from higher interest rates over the next few quarters.