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Canara Bank, has 3061 CBS compliant branches spread across the country and has
total of over 2000 ATMs. The Bank has been performing much better on core
earnings than the Industry average with consistent improvement in interest margins.
The banks NPA seem to be in control and its capital Adequacy is also very
comfortable at 13.88% as per Basel II with Tier I capital at 8.82% while tier II capital
is at 5.06 %. With the Government holding in the bank at 73.17% there is plenty of
headroom for the bank to raise funds in the future for its expansion in both the
categories. Loan disbursement also seems to be improving.
Asset Quality & Provisions: The Bank tops the PSB’s as the largest lender to the infrastructure sector during FY10.
CASA deposits proportion is at around 30.10% in Q2FY11 and Net NPAs remained stable at 1.06% as of Sep-10. As core
business improved the NIM improved to 3.16% up from 2.66% previous year and 3.01% last quarter. Due to better Asset
quality the coverage ratio (incl tech write-offs) stood at 77.1%. We expect it going forward to maintain its NIM around 3%.
Operational Performance: At present, business per employee is at ` 106 mn in Q2FY11 up from ` 84 mn last year.
Profitability per employee jumped by ` 3 lakh to ` 10 lakh in the Q2FY11 against ` 7 lakh a year-ago, which the bank
expects to enhance further.
Value unlocking: Canara Bank has partnered Robeco for mutual fund and has 51% stake in this venture, named as
Canara Robeco Mutual Fund. It has also a JV for insurance with 51% stake in it by the name Canara HSBC OBC Life
Insurance Co Ltd. It closed FY 09-10 with ` 8.61 bn in gross written premiums, recording a growth of 189% over FY 08-09.
Growth: As per RBI’s directive, the bank has set an internal target to overall lend ` 12.50 bn under the financial inclusion
programme for 2010-11 covering 1,423 villages on a pan-India basis. It has sufficient resources to meet the business
expansion. The management expects total business to reach ` 5000 bn by end of FY11 comprising total deposits of ` 2850
bn and advances of ` 2150 bn. The bank intends to open 200 new branches in the 2nd Half of FY11.
Valuations: At the CMP of ` 742, Canara Bank trades at a P/E of 7.9x & 7.1x its FY11E & FY12E consensus EPS of
` 93.5 & ` 105.1 respectively. We recommend a “BUY” on the stock with a medium to long term view.
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