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Canara Bank 4QFY2014 performance highlights and results update

May 14, 2014, Wednesday, 10:34 GMT | 05:34 EST | 14:04 IST | 16:34 SGT
Contributed by Angel Broking


Canara Bank reported moderate operating numbers for 4QFY2014, while asset quality exhibited improvement (aided by sale of vulnerable assets to ARCs). The key highlights of the results are: 1) NII growth of 21.3% yoy (adjusting for one-off interest on income tax refund of Rs.100cr, the NII grew 16.1%), 2) Sale of assets to ARCs - Rs.1,400cr (net impact Rs.700cr), 3) NIM improvement by 6bp qoq, 4) Earnings de-growth of 30.7% adjusting for one-off item.

Loan book grew strongly; NIMs increase 6bp qoq: During 4QFY2014, the bank’s loan book grew strongly by 24.3% yoy, while deposits book grew healthy at 18.2% yoy. Calculated CASA ratio for the bank increased by 36bp yoy (145bp qoq) to 24.5%. Reported NIM for the bank increased sequentially by 6bp to 2.3%. During 4QFY2014, the non-interest income (excluding treasury) witnessed an increase of 31.9% yoy, primarily on back of robust growth in ‘others’ at Rs.600cr compared to Rs.390cr in 4QFY2013. On the asset quality front, slippages came in at Rs.2,135cr (annualized slippage rate of 3.5% as compared to Rs.2,100cr in 3QFY2014. Recoveries/upgrades came in higher at Rs.2,243cr, as compared to Rs.1,061cr in 3QFY2014 and Rs.520cr in 4QFY2013. The bank sold assets worth Rs.1,400cr to ARCs (NPA impact of Rs.700cr). Absolute gross and net NPAs decreased by 6.2% and 13.2% qoq respectively. Thus, the Gross and Net NPAs got reduced by 30bp and 41bp qoq to 2.5% and 2.0% respectively. The PCR for the bank increased qoq by 272bp to 60.1%. Additionally, the bank restructured advances worth ~Rs.1,432cr, thereby taking its outstanding restructured book to Rs.23,205cr. Going forward, the restructuring pipeline for the bank over the next few quarters remains sizeable at ~Rs.3,000cr.

Outlook and valuation: The bank witnessed asset quality improvement in 4QFY2014, aided by sale of assets to ARCs. Going ahead, the Management has exuded confidence of achieving Gross and Net NPA ratios of 2% and 1.5% respectively by FY2015. At CMP, even after the recent run-up in the stock price, the stock trades at a relatively cheap valuation of 0.4x FY2016E ABV as compared to large PSU banks. We recommend a Buy rating on the stock.