Canara Bank - 1QFY2013 Result Update - Angel Broking

Canara Bank reported a disappointing performance for 1QFY2013. Net profit growth came in at 6.8% yoy, mainly on back of subdued growth of 4.2% yoy in NII (net interest income) and 21.5% yoy higher provisioning on sequentially deteriorated asset quality.

NIMs decline 10bp qoq; Slippages increase sequentially: Overall business growth for the bank remained moderate in 1QFY2013, with advances growing by 4.9% yoy and deposits growing by 11.5% yoy. CASA deposits grew at a subdued pace of 2.4% yoy (much lower than the growth in overall deposits), despite 9.2% yoy growth in saving deposits, on account of 25.0% yoy de-growth in current deposits. Consequently, calculated CASA ratio for the bank declined to a low of 23.3%. The reported NIM for the bank declined sequentially by 10bp, as the 54bp sequential increase in the cost of deposits completely offset the 19bp qoq increase in the yield on advances. Non-interest income (excluding treasury) witnessed a decline of 5.4% on a yoy basis, as lower recoveries from written off accounts completely offset the growth in CEB (Commission, exchange and brokerage) income. On the asset quality front, the bank witnessed increased pressures, with both gross and net NPA ratio increasing on a sequential basis by 25bp and 20bp, respectively. PCR dipped sequentially by 106bp to 66.5%. Slippage ratio increased sequentially by 47bp to 2.6%, highest in the past five quarters. Additionally, during the quarter the bank restructured Rs.6,010cr worth of accounts (~Rs.5,400cr pertaining to discoms), in line with their 4QFY2012 guidance. The outstanding restructured book as of 1QFY2013 stands at Rs.14,056cr. As per the management, current restructuring pipeline is limited at ~Rs.500cr.

Outlook and valuation: Although a weakening domestic macro-economic environment and consequently slower credit growth and ailing asset quality are likely to cap near-term upsides, a cyclically moderate valuation of 0.7x FY2014E ABV vs. eight-year average of 1.1x and range of 0.7-1.4x in our view largely builds in the negatives. Hence, we recommend Accumulate rating on the stock with a target price of Rs.421.

Source : Equity Bulls

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