Canara Bank - Q4FY13 Result - PhillipCapital

Canara BankÆs Q4FY13 PAT of Rs 7.25 bn (-12.5% YoY) was driven by higher other income (on the back of treasury gains) and containment of opex. Slippage of one account of Rs 5.5 bn (due to divergence with Central Auditors) resulted in higher than expected slippages for Q4FY13. Restructuring remained high at Rs 28.9 bn. As against the peersÆ practice of de-classifying restructured assets with 2 years+ satisfactory performance, the bank continues to disclose such accounts as restructured standard, adjusting for which, the restructured book would be lower by Rs 21 bn.

Key highlights

- Net Interest Income growth remained subdued at 2.5% YoY due to 11 bps YoY decline in NIM to 2.39% and a subdued credit offtake. On a QoQ basis, NIM improved by 3 bps due to some pick in credit offtake QoQ and slight reduction in cost of funds.

- Advances which had been de-growing over the past 2 quarters saw some pick up in Q4FY13 (11% QoQ) driven by agri, MSME and retail segments. Deposits increased by 9.8% QoQ driven by a sharp increase in current account deposits (could possibly include some one-off). CASA stood at 24.2%.

- Non-interest income grew by 30.8% YoY on the back of higher treasury gains. Lower credit offtake resulted in a lower fee income growth.

- Provisions increased by 63% YoY and 20% QoQ on the back of higher provisions on restructured assets.

- GNPAs declined by 20 bps QoQ to 2.57%. Slippages moderated to Rs 10.9 bn (1.8% annualized slippage ratio) driven by one account (Shiva Ventures). However, restructuring increased significantly to Rs 28.9 bn. The outstanding restructured book now stands at Rs 181 bn (7.5% of advances, however this includes accounts worth Rs 21 bn with 2 year+ satisfactory performance which will likely go off in the ensuing quarters).

Outlook and Valuation

The consolidation in balance sheet has significantly moderated the top line growth. We expect the bank to kick start the growth momentum thus improving its subdued (68%) CD ratio and hence NIMs; translating to improvement in NII growth. The management has guided for NIM of 2.75%+ in FY14E on the back of a) deployment of excess liquidity in balance sheet b) the impact of repricing of high-cost deposits shedded so far and c) improvement in CASA (especially from new branches which the bank plans to open in the non-Southern states). Fee income is also likely to gain traction over FY13-15E on the back of some pick up in credit growth, higher volumes of third party product distribution and continued higher recoveries from w/off accounts. Asset quality will likely improve on the back of higher recoveries. The bank has guided that GNPAs will be contained at less than 2% while NNPAs will be maintained at ~1% by FY14E. Since liability franchise continues to be a major concern, we remain a bit skeptical about the bank achieving its NIM target on a sustainable basis. At CMP Rs 396, the stock trades at 0.7x FY15E Adj BV. We retain our Buy rating on the stock with PT of Rs 512.

Source : Equity Bulls

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