Shares of Canara Bank were in focus today after the public sector lender reported a 89 per cent jump in Q2 profit for the quarter ended September 2022. The stock is a part of late investor Rakesh Jhunjhunwala’s portfolio. He owned 1.48 per cent stake or 2.68 crore shares in the lender at the end of September quarter. The stellar earnings prompted brokerages to assign a target price higher by up to 31 per cent than the current market price. Financial services firm Motilal Oswal has assigned a target of Rs 340, 31 per cent higher to the current market price of Rs 259.
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“Slippages were flat sequentially, thus asset quality ratios improved further underpinned by higher recoveries and upgrades. Decline in SMA overdue and restructured portfolio provides incremental comfort on asset quality trends. We increase our profit after tax estimates by 17%/19% for FY23/24, respectively, to account for higher net interest income, other income, loan growth and lower tax rate. We estimate an return on assets /return on equity of 1.0%/16.2% by FY24E. Maintain BUY with a revised target price of Rs 340 (premised on 0.8x FY24E ABV),” said Motilal Oswal.
On the other hand, Emkay Global sees an upside of 27.5 per cent at Rs 330 for the banking stock.
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“We meaningfully raise our earnings estimates by 22-27% over FY23-25, factoring-in the higher credit growth/margin and lower tax rate. We now expect RoA/RoE to improve to 0.9%/17% by FY25 estimates (without considering capital raise). We retain BUY on the stock, with a revised target price of Rs 330 per share, based on 0.7x FY24E ABV and subsidiary/investment value of Rs 23,” said Emkay Global.
The state-owned bank reported a 89 per cent rise in net profit to Rs 2,525 crore in Q2 against a net profit of Rs 1,333 crore in the corresponding period of the previous fiscal. Total income climbed to Rs 24,932.19 crore in Q2 this year against Rs 21,331.49 crore in the corresponding period of 2020-21.
Bank’s gross non-performing assets (NPAs) fell to 6.37 per cent of the gross advances as of September 30, 2022, compared to 8.42 per cent at the end of September 2021. JM Financial sees the banking stock rising 8.1 percent to Rs 280 in a year.
“We expect Canara Bank’s earnings recovery to be driven by a) credit cost normalisation (1.3% by FY24E), b) improvement in margins and c) sustained growth momentum. Additionally, shift to the new tax regime would also aid in improvement of return on assets to 0.7%/0.8% by FY23E/24E. Maintain BUY with a revised Rs 280 (valuing core bank at 0.7x FY24 estimated adjusted book value per shares),” said JM Financial.
Meanwhile, Canara Bank stock gained up to 4.63 per cent to Rs 270.9 against the previous close of Rs 258.90 on BSE. Canara Bank shares are trading higher than 5 day, 20 day, 50 day, 100 day and 200 day moving averages. The large cap stock has gained 34.27 per cent in 2022 and risen 34.54 per cent in a year. In a week, the stock has gained 18.42 per cent. Market cap of the lender rose to Rs 48,419 crore on BSE.
