Dear All,
Forwarding you the Result Update on Canara Bank for 4QFY2011 with a Neutral recommendation.
For 4QFY2011, Canara Bank posted a disappointing set of results with high slippages and a sharp decline in reported NIM on a sequential basis. We recommend a Neutral rating on the stock due to its weak liability franchise and persistently high slippages.
Healthy business growth but NIM and high slippages disappoint: Business momentum during 4QFY2011 was healthy, with advances and deposits growing by 11.9% qoq (25.5% yoy) and 11.6% qoq (25.3% yoy), respectively. Saving deposits were flat sequentially; and on a yoy basis, growth moderated to 17.5% yoy from 27.5% yoy in 3QFY2011. Due to year-end surge in current account deposits, the bank was able to sustain its reported CASA ratio above 30%. Reported NIM fell by ~30bp qoq to 2.99% due to a sharp rise in cost of funds. During FY2011, the bank took a hit of `890cr towards second pension option liability and `138cr towards enhancement of gratuity limits. Slippages ratio for the quarter was high at 4.4% compared to 1.2% in 3QFY2011 and 1.3% in 9MFY2011. The sharp rise in slippages can be partly attributed to switchover to system-based NPA recognition for accounts above `10lakhs. There were no major chunky accounts in slippages, as accounts above `1cr, which slipped into NPAs during 4QFY2011, accounted for only `350cr out of the total slippages of over `1,800cr. However, recoveries picked up sharply both on a qoq as well as yoy basis, which aided the bank in containing gross NPA ratio at 1.5%. The provision coverage ratio including technical write-offs declined by ~300bp qoq to 73.0%.
Outlook and valuation: At the CMP, the stock is trading at 1.1x FY2013E ABV of `531.1 compared to its five-year range of 0.8–1.4x with a median of 1.2x. Taking into account the persistently high slippages and expected NIM pressures, we believe the stock is fairly priced near its five-year median trading multiple. Hence, we recommend a Neutral rating on the stock.
Kindly click on the following link to view the Report.
If you have any further queries, feel free to call us on 022 39357600 Ext: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,5th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600, Ext: 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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