Canara Bank F2Q11 – Margins Surprise to the Upside:: Morgan Stanley

Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄


Canara Bank
F2Q11 – Margins Surprise to
the Upside
Quick Comment – Canara Bank reported F2Q11
profit of Rs10bn: The result was ahead of our estimate
of Rs6.4bn and down 1% QoQ and up 11% YoY. The
earnings surprise was driven by net interest income and
lower-than-expected credit costs.
The key trends from the results:
1) NII growth was strong at 16% QoQ and 52% YoY.
The key driver was a 30bp QoQ expansion in margin (on
our computations). Canara Bank seems to have
benefited from higher yields on advances (+36bp QoQ
on our computations) even as deposit costs were stable.
2) Loan growth was muted at 1% QoQ and 20% YoY.
Deposits grew 4% QoQ and 22% YoY.
3) Net capital gains and recoveries contribution to PBT
continued to come off at 9% in F2Q11 vs. 20% in F1Q11
and 30% in F4Q10.
4) Fee income growth was weak, growing 6% QoQ and
12% YoY.
5) Credit costs increased but remained relatively low at
0.5% of loans (vs. 0.3% in previous quarter and 0.93%
average in F2010). Coverage ratio was broadly stable at
77%.
Given the sharp nature of the rise in margins and the fact
that the increase in loans yields was contrary to the
trends seen in other banks so far, we will look for further
clarity on margin sustainability at Canara Bank’s analyst
meeting (scheduled on October 22). The stock is trading
at 7x F2012e earnings and 1.3x BV.