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Canara Bank 3QFY2014 performance highlights and results update

February 6, 2014, Thursday, 06:07 GMT | 01:07 EST | 11:37 IST | 14:07 SGT
Contributed by Angel Broking

Canara Bank reported moderate operating numbers for the quarter, while asset quality exhibited weakness. NII growth was moderate at 12.0% yoy (significantly lower compared to advance growth of 31.8% yoy on back of 15bp yoy lower margins), while non-interest income was flat yoy. PPOP growth was subdued at 4.9% yoy. The bank witnessed asset quality weakness during the quarter as the annualized slippages rate for the quarter came in at 3.5% (compared to 2.5% qoq), while fresh restructuring came in at ~Rs.3,400cr, on guided lines. Provisioning expenses for the bank grew 68.0% yoy to Rs.1,052cr, leading to a sharp earnings de-growth of 42.4% yoy.
Loan book grew strongly; NIMs remained stable qoq: During 3QFY2014 the bank’s loan book grew strongly by 31.8% yoy, while deposits book too grew robustly at 26.2% yoy. Calculated CASA ratio for the bank decreased by 195bp yoy (123bp qoq) to 23.1%. Reported NIMs for the bank remained largely stable sequentially at 2.2% (though declined 15bp yoy). During 3QFY2014, the Noninterest income (excluding treasury) witnessed an increase of 30.2% yoy, primarily on back of robust growth in recoveries from written-off accounts. On the asset quality front, slippages came at Rs.2,100cr (annualized slippage rate of 3.5% as compared to 2.5% in 2QFY2014). Of the slippages during the quarter, two large corporate accounts contributed roughly Rs.900cr. Recoveries/upgrades came in higher at Rs.1,061cr, as compared to Rs.891cr in 2QFY2014 and Rs.217cr in 3QFY2013. While the bank had no sale of assets to ARC during the quarter, it has identified assets worth Rs.900cr for sale to ARCs during 4QFY2014. Absolute gross and net NPAs increased by 8% and 6.4% qoq respectively. PCR for the bank declined marginally by 38bp qoq to 57.4%. Additionally, the bank restructured advances worth Rs.3,454cr during the quarter, of which ~Rs.2400cr came from discom restructuring under the FRP. Going forward, the restructuring pipeline for the bank over the next few quarters remains sizeable at ~Rs.3,300cr (of which ~Rs.1,600cr would be from discom restructuring under the FRP).
Outlook and valuation: Given the backdrop of prevailing macro environment, its high exposure to stressed sectors and the past volatility seen in its asset quality performance, we remain cautious on the asset quality of the bank, in the near term. After the recent underperformance, the stock trades at valuations of 0.4x FY2015E ABV. We recommend a Neutral rating on the stock.

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