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Canara Bank
Weak Trends in F4Q11
Quick Comment: Canara Bank reported PAT of
Rs8.99bn (-19% QoQ, +79% YoY) slightly ahead of
our estimate of Rs8.7bn. Non interest income was
higher than our expectation, driven by recoveries and
FX fee income. This was offset by weaker net interest
income and higher provisions.
The key highlights from the results:
NII was down 7% QoQ, up 23% YoY: NIM was 2.99%
for the quarter (down 32 bps QoQ and 8 bps YoY). Cost
of deposits (computed) was up 62 bps QoQ. CASA to
deposits was 70bps lower QoQ at 28.3%.
Volume growth was robust: Both loans and deposits
were up 12% QoQ, 25% YoY. Savings deposits were flat
QoQ, up 18% YoY. Current account balances were up
37% QoQ, 33% YoY. Term deposits were up 13% QoQ,
27% YoY. The LD ratio was broadly stable at 72%.
Reported non interest income was up 74% QoQ,
31% YoY: CEB (fee) income grew by 17% YoY (up 47%
QoQ, the sequential strength was driven by: a)
seasonality; and b) Canara increased processing fees
for various products towards the start of the month. The
volatile FX segment was up sharply by 164% YoY.
Recoveries, however, picked sharply to Rs3.3bn from
Rs1.5bn a year back. Contribution of net capital gains to
PBT was -3% this quarter.
Operating expenses were up 6% QoQ, 38% YoY:
Provisions related to 2nd pension liability and gratuity
were broadly in line with our estimates at Rs3.7bn (MSe
Rs3.6bn).
Asset quality trends were weak: GNPLs were up 12%
QoQ. Gross slippages (as a percentage of opening
loans, annualized) were materially up at 3.9% vs. 1.2%
in F3Q11. This was partially compensated by recoveries
(1.7%) and upgradations (1.2%). Coverage ratio
(including tech write-offs) were lower QoQ at 73% vs 75.9%
in F3Q11. Coverage (excluding technical write-offs) was
lower QoQ at 24% vs 27.7% in F3Q11.
Remain Underweight. Core trends weakened sequentially
with margins compressing by 32 bps sequentially; net new
NPL creation picked up (to 1% of loans from 0.7% in
previous quarter) and coverage ratio is declining. Please
refer to our recent report dated May 2, 2011 “Coming
Collapse of Margins”, in which we downgraded our India
Financial Services industry view to Cautious.
Price Target Discussion
We arrive at our price target of Rs570 using a probability
weighted three-phase residual income model – a five-year high
growth period, a 10-year maturity period, followed by a
declining period.
Risks to Our Price Target
Key downside risks to our price target include slower-thanexpected
loan growth, sharp compression in NIMs, and
significant deterioration in asset quality (restructured loans
slippages).
Upside risks include: margin progression, volume growth and
fee income being stronger than expectations, and credit costs
being lower than expectations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Canara Bank
Weak Trends in F4Q11
Quick Comment: Canara Bank reported PAT of
Rs8.99bn (-19% QoQ, +79% YoY) slightly ahead of
our estimate of Rs8.7bn. Non interest income was
higher than our expectation, driven by recoveries and
FX fee income. This was offset by weaker net interest
income and higher provisions.
The key highlights from the results:
NII was down 7% QoQ, up 23% YoY: NIM was 2.99%
for the quarter (down 32 bps QoQ and 8 bps YoY). Cost
of deposits (computed) was up 62 bps QoQ. CASA to
deposits was 70bps lower QoQ at 28.3%.
Volume growth was robust: Both loans and deposits
were up 12% QoQ, 25% YoY. Savings deposits were flat
QoQ, up 18% YoY. Current account balances were up
37% QoQ, 33% YoY. Term deposits were up 13% QoQ,
27% YoY. The LD ratio was broadly stable at 72%.
Reported non interest income was up 74% QoQ,
31% YoY: CEB (fee) income grew by 17% YoY (up 47%
QoQ, the sequential strength was driven by: a)
seasonality; and b) Canara increased processing fees
for various products towards the start of the month. The
volatile FX segment was up sharply by 164% YoY.
Recoveries, however, picked sharply to Rs3.3bn from
Rs1.5bn a year back. Contribution of net capital gains to
PBT was -3% this quarter.
Operating expenses were up 6% QoQ, 38% YoY:
Provisions related to 2nd pension liability and gratuity
were broadly in line with our estimates at Rs3.7bn (MSe
Rs3.6bn).
Asset quality trends were weak: GNPLs were up 12%
QoQ. Gross slippages (as a percentage of opening
loans, annualized) were materially up at 3.9% vs. 1.2%
in F3Q11. This was partially compensated by recoveries
(1.7%) and upgradations (1.2%). Coverage ratio
(including tech write-offs) were lower QoQ at 73% vs 75.9%
in F3Q11. Coverage (excluding technical write-offs) was
lower QoQ at 24% vs 27.7% in F3Q11.
Remain Underweight. Core trends weakened sequentially
with margins compressing by 32 bps sequentially; net new
NPL creation picked up (to 1% of loans from 0.7% in
previous quarter) and coverage ratio is declining. Please
refer to our recent report dated May 2, 2011 “Coming
Collapse of Margins”, in which we downgraded our India
Financial Services industry view to Cautious.
Price Target Discussion
We arrive at our price target of Rs570 using a probability
weighted three-phase residual income model – a five-year high
growth period, a 10-year maturity period, followed by a
declining period.
Risks to Our Price Target
Key downside risks to our price target include slower-thanexpected
loan growth, sharp compression in NIMs, and
significant deterioration in asset quality (restructured loans
slippages).
Upside risks include: margin progression, volume growth and
fee income being stronger than expectations, and credit costs
being lower than expectations.
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