Canara Bank shares rise after Q3 results; What analysts say about Jhujhunwala's largest banking bet?

Shares of Canara Bank Ltd extended their rally on Thursday, after the company reported a strong performance in the December 2023 quarter in the previous trading session. Majority of the brokerage remain positive on Jhunjhunwala's largest banking bet and see future upside in the counter. Canara Bank reported a net profit of Rs 3,656 crore in the December 2023 quarter, rising 26.87 per cent on a year-on-year (YoY) basis, compared to a bottomline of Rs 2,881.5 crore in the year ago period. Its gross NPAs improved to 4.39 per cent while net NPAs stood at 1.32 per cent for the quarter. The state-run lender reporteda 9.5 per cent rise in net interest income (NIIs) at Rs 9,417 crore during the October-December 2023 quarter, which stood at Rs 8,600 crore in the same quarter previous year. Net interest margin (NIM) was improved by marginally 3.02 per cent, but was flat sequentially. Canara Bank delivered a steady quarter on the back of robust growth in NII and healthy growth in net advances. Increase in CoFs was off-set by an upward re-pricing of yields, which resulted in NIMs inching up to 3.03 per cent. Though, management anticipates CoFs to have an upward bias going ahead and thereby expects NIMs to stabilize in the range of 2.9-3 per cent, said JM Financial.

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The cost-to-income ratio spiked to 50.4 per cent in the quarter due to a wage provision revision from 15 per cent to 17 per cent for 14 months, leading to an Rs 450 crore increase in the wage bill. Additionally, the revision prompted a provision of Rs 250 crore  for actuaries on retirement benefits, culminating in a total provision of Rs 700 crore for employee costs, it said. "However, management is confident of ending the fiscal year at the guided level of 45 per cent. Asset quality metrics continued to improve. We expect Canara Bank to continue going forward, driven by steady NIMs and continued expansion in return profile with stable asset quality with moderate credit costs," JM added with a 'buy' rating and a target price of Rs 485. Shares of Canara Bank surged more than 3.36 per cent to Rs 469.60 on Thursday, commanding a total market capitalization of more than 84,000 crore. Shares of Canara Bank have surged more than 40 per cent in the last six-months, while it is up 55 per cent in the last one year. Seasoned Dalal Street investor Rekha Rakesh Jhunjhunwala owned 3,75,97,600 equity shares, or 2.07 per cent stake of Canara Bank as of December 31, 2023, keeping the holding unchanged for straight fifth quarter. Her stake in the lender was worth Rs 1,765.5 crore as of Thursday. Canara Bank reported standalone PAT was driven by lower provisions. NII growth was in line, while margins improved, said Motilal Oswal. Other income grew 8 per cent YoY and Opex grew 23 per cent YoY. PPoP, thus, declined 2 per cent and was a miss. On the business front, the loan book grew 13 per cent YoY, driven by healthy traction in retail and corporate loans, it said. "Asset quality ratios improved significantly, with credit costs falling below 1 per cent. Fresh slippages stood at Rs 26,970 crore. We broadly maintain our EPS estimates and expect Canan bank to deliver FY25E RoA and RoE of 1.1 per cent and 19.5 per cent, respectively," it added with a 'buy' rating with a target price of Rs 570. Among the global brokerage firms, Morgan Stanely continues to remain 'underweight' on Canara Bank with a target price of Rs 360 apiece. Canara Bank has 9585 branches, out of which 3,095 are rural, 2,742 semi-urban, 1,906 urban and 1,842 metro branches along with 10,463 ATMs across the nation as of December 31, 2023,. The PSU lender also has three overseas branches in London, New York and Dubai.

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