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Banks: Buy Canara Bank
Canara Bank is the 5th largest public sector bank with an established presence for over 100 years, and a network of
~3065 branches and ~2015 ATMs
Recently moved to a 100% CBS (Core Banking Solution) platform, which is expected to improve the operational
efficiency of the bank and enhance profitability
Renewed focus on balance sheet growth: Advances have been growing at an average 24% over the past 8 quarters
(higher than industry growth rate)
The bank expects its total business to reach ~5 trillion by Mar-11
Growth led by increased Infra and SME lending
Improvement in asset quality with adequate coverage: Has demonstrated improvement in overall asset quality. The
gross NPA ratio currently stands at 1.49% (at 1.52% in Mar-10)
The bank maintains strong RoA of ~1.5% backed by improved margins and asset quality. We expect the bank to
deliver average RoA and RoE of 1.4% and ~24% respectively over the next couple of years
Has sought approval to raise Rs 20 bn through QIP: We expect the fund infusion will be book accretive and will
increase the lending capacity of the bank
We have a BUY rating on the stock with a TP of Rs 774 (1.6x FY12 ABV and 7x FY12 EPS) – upside of 32% from
CMP
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