Factoring near term capital infusion, the brokerage firm expect the bank’s loan book to fatten cautiously at CAGR of 9.2% over FY21-23E, led by corporate book growth. In its opinion, the bank’s credit cost will normalise further by FY23E and estimate return ratio ROA/ROE of 1% and 16% in FY23E.
“We value the standalone entity at 0.6xFY23E BVPS ( ₹433) and arrive at a target price of ₹260. Given inexpensive valuation, we recommend Buy on Canara Bank shares with a potential upside of 30% from the current stock level," suggested LKP Securites.
On the business front, the bank has been reporting stable credit growth across segments. The bank’s recoveries are in line with the guidance and the brokerage expects the credit cost to be below 2% for FY23. Moreover, the bank has raised capital in FY21 which resulted in the CET -1 of 10.3% (at par).
“thus we believe the bank may raise capital from stake sales of AMC, HFC and insurance company. We believe the hurdles from merger (with Syndicate Bank) are behind and the bank shall witness gradual improvement in profitability with FY23E ROA/ROE of 1%/16%," the brokerage note added.
As per BSE shareholding pattern, Indian ace investor and stock market trader Rakesh Jhunjhunwala holds 1.96% stake in Canara Bank as of March 2022.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
