Rekha Jhunjhunwala-backed stock dips 3% post Q4 numbers
Canara Bank’s stock price experienced a significant decline on Tuesday following its Q4 earnings report, falling by almost 4%.
However, several brokerages still consider the stock attractive and recommend buying, citing the bank’s stable margins and improving return ratios, despite remaining watchful of ECL provisioning. Rekha Jhunjhunwala, wife of late market mogul Rakesh Jhunjhunwala, is one of the largest public shareholders of Canara Bank. As of the time of writing, Canara’s stock price on the BSE was trading at ₹304.60 apiece, down by 2.79%. In Q4FY23, the bank’s net profit soared by 90.63% YoY, and its gross advances, retail credit, and housing loans all experienced significant YoY growth. Meanwhile, its gross NPA declined to 5.35% in Q4FY23 from 7.51% in Q4FY22. Brokerage firms JM Financial, Motilal Oswal, and Kotak Institutional Equities all maintain a “buy” rating on Canara Bank’s stock, with revised target prices ranging from ₹371 to ₹400. They expect the bank’s earnings to be driven by healthy loan growth momentum, stability in margins, and lower credit costs, leading to improvement on return metrics. Overall, Canara Bank’s business momentum appears to be strong, and its operating profitability is expected to hold up well in the medium term.
Should you buy this banking stock?
JM Financial in its report said, “We expect CBK’s earnings to be driven by
a) healthy loan growth momentum,
b) stability in margins, and
c) lower credit costs leading to improvement on return metrics leading to RoA/RoE of 0.96%/18.5% by FY25e.”
On the stock price, JM Financial said ” Maintain BUY with revised TP of ₹371 (valuing the core bank at 0.8x FY25E BVPS).”
Further, Motilal Oswal in its note said, CBK reported a mixed performance as miss on operating performance was offset by higher ‘other income’ which drove earnings. Margins stood broadly flat, while asset quality witnessed a steady improvement. Loan growth was led by Corporate, Retail, and Agri segments and the outlook remains encouraging. Slippages moderated sequentially, enabling further improvement in asset quality ratios. The controlled SMA book, along with the declining restructuring book, provides additional assurance regarding asset quality.”
Rekha Jhunjhunwala-backed stock dips Recommendation
Motilal’s note added, “We revise our estimates slightly to factor in lower provisions and remain watchful of the provisioning requirement under the IND-AS. We expect CBK to deliver FY25E RoA/RoE of 1.1%/17.8%. We reiterate our BUY rating with an unchanged TP of ₹400 (premised on 0.9x Sep’24E ABV).”
Meanwhile, Kotak Institutional Equities (KINSITE) in its note said, “We maintain a BUY rating with FV of Rs370 (Rs340 earlier). We value the bank at 0.85X March 2025E adjusted book, with RoEs of 15-18% in the medium term. The steady decline in slippages and healthy trend on bad debt recoveries gives us the confidence that the declining credit cost, along with high financial leverage, will continue to support Canara Bank’s return ratios in the medium term.”
As per Kotak, Canara’s business momentum seems strong as the bank is delivering healthy mid-teen growth. Operating profitability should hold up well during this period. It added, “We see little reason to worry today due to the benign asset quality environment. Accordingly, we have tweaked our estimates on credit cost and growth.”
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