Buy Canara Bank - Motilal Oswal

Canara Bank (CBK IN; Mkt Cap USD6b, CMP Rs657, Buy)

- Loans grew 20% YoY (1.3% QoQ) while deposits increased 22% YoY (4.3% QoQ) - in line with industry trend.

- NIM for 2QFY11 was 3.16% (3.01% in 1QFY11) - a positive surprise; margin expansion is driven by stable cost of deposits on a QoQ basis.

- Gross NPAs increased just 3% QoQ to Rs26.4b and net NPAs increased 8% QoQ to Rs18.6b. PCR including technical write-offs stood at 77.1%.

- Stable asset quality resulted in lower provisioning expenses of Rs1.6b v/s Rs2.2b in 1QFY11 - driving up profitability.

- While reported operating profits were flat YoY, core operating profits grew 48% YoY and 15% QoQ, led by strong NII growth.

We expect the bank to report EPS of Rs95 in FY11 and Rs109 in FY12. BV would be Rs383 in FY11 and Rs472 in FY12. RoA and RoE would be high at ~1.3% and 26%, respectively for FY11-12. The stock trades at 1.4x FY12E BV and 6.1x FY12E EPS. Sustainability of core operating profits should drive re-rating. Buy.

Source : Equity Bulls

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