Canara Bank - Significant loser in a tightening liquidity environment - 1QFY14 Results Review - ANTIQUE

Canara Bank (CBK) reported 1QFY14 earnings at INR7.9n, in line with consensus and our estimates primarily on account of strong trading profits (55% of net profits came from treasury).However overall quality of earnings deteriorated with high level of GNPA formation and elevated additions to restructured book. The bank has taken significant interest risk on its investment book (Investment to deposit ratio at 36%, Available for sale (AFS) at 51% and duration of AFS book at 4.4years) which is likely to put earnings under pressure till rupee liquidity continues to remain tight. Further incremental loan growth has come in the power sector (infrastructure is at 19% of advances) which could pose additional asset quality risks. Hence we downgrade to Hold with a TP of INR285/share.

Valuation and outlook

We have cut our estimates for FY14E and FY15E by 23% and 19% respectively to reflect the challenging macro in the form of slowing loan growth, tight liquidity and higher credit costs. We are cutting are target price from INR488/share to INR285/share (0.55x FY15E P/ABV) and downgrading the stock to Hold.

Source : Equity Bulls

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