For 2QFY2012, Canara Bank registered a 15.4% yoy decline in its net profit,
in-line with our expectations. However, provisioning expenses were considerably
higher than expected – offset by stronger NII and healthy rise in other income
(driven by recoveries from written-off accounts and higher trading profits).
We maintain our Accumulate recommendation on the stock.
NIM improves in-line with peers; slippages remain elevated but largely offset by
higher recoveries and aggressive write-offs: For 2QFY2012, the bank’s overall
business momentum remained moderate, with advances increasing marginally by
1.4% qoq (up 23.8% yoy) and deposits accretion rising by 4.1% qoq (up 25.4%
yoy). Saving account deposits growth was relatively healthy at 17.9% yoy;
however, the 5.3% yoy decrease in current account balances pulled down overall
CASA deposits growth to 12.2% yoy. Calculated CASA ratio improved, albeit
marginally by 50bp qoq, to 25.8% (down 305bp yoy). A relatively faster (22bp
qoq) rise in yield on advances vis-à-vis an 8bp qoq rise in cost of deposits led to a
22bp sequential improvement in reported NIM to 2.6%. Other income growth
was robust 65.8% yoy, driven by doubling of recoveries from written-off accounts
and substantially higher trading profits. On the asset-quality front, slippages
continued to remain at elevated levels as the bank completed the migration to
system-based NPA recognition platform. However, the rise in NPAs was largely
contained on the back of higher recoveries and aggressive write-offs. Gross and
net NPA ratios remained largely stable at 1.73% and 1.43%, respectively.
Outlook and valuation: Incremental asset-quality pressures are expected to
moderate going forward, as the bank has completed the migration to
system-based NPA recognition platform. Also, recoveries and upgrades especially
from the recent slippages are likely to pick up going forward, as witnessed in
2QFY2012. At the CMP, the stock is trading at reasonable valuations, in our view,
of 0.9x FY2013E ABV. Hence, we maintain our Accumulate recommendation on
the stock with a target price of `510.
in-line with our expectations. However, provisioning expenses were considerably
higher than expected – offset by stronger NII and healthy rise in other income
(driven by recoveries from written-off accounts and higher trading profits).
We maintain our Accumulate recommendation on the stock.
NIM improves in-line with peers; slippages remain elevated but largely offset by
higher recoveries and aggressive write-offs: For 2QFY2012, the bank’s overall
business momentum remained moderate, with advances increasing marginally by
1.4% qoq (up 23.8% yoy) and deposits accretion rising by 4.1% qoq (up 25.4%
yoy). Saving account deposits growth was relatively healthy at 17.9% yoy;
however, the 5.3% yoy decrease in current account balances pulled down overall
CASA deposits growth to 12.2% yoy. Calculated CASA ratio improved, albeit
marginally by 50bp qoq, to 25.8% (down 305bp yoy). A relatively faster (22bp
qoq) rise in yield on advances vis-à-vis an 8bp qoq rise in cost of deposits led to a
22bp sequential improvement in reported NIM to 2.6%. Other income growth
was robust 65.8% yoy, driven by doubling of recoveries from written-off accounts
and substantially higher trading profits. On the asset-quality front, slippages
continued to remain at elevated levels as the bank completed the migration to
system-based NPA recognition platform. However, the rise in NPAs was largely
contained on the back of higher recoveries and aggressive write-offs. Gross and
net NPA ratios remained largely stable at 1.73% and 1.43%, respectively.
Outlook and valuation: Incremental asset-quality pressures are expected to
moderate going forward, as the bank has completed the migration to
system-based NPA recognition platform. Also, recoveries and upgrades especially
from the recent slippages are likely to pick up going forward, as witnessed in
2QFY2012. At the CMP, the stock is trading at reasonable valuations, in our view,
of 0.9x FY2013E ABV. Hence, we maintain our Accumulate recommendation on
the stock with a target price of `510.
