Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Below expectations
Canara Bank’s net profit for 1QFY12 declined by 28% YoY to Rs7.3bn and
was below our estimates due to lower topline and higher provisioning.
We expect margin pressures to continue as the loan growth continues to
be higher than CASA growth. Asset quality pressures were high with
gross delinquency ratio of 3.2%, partly as the bank transitioned to the
system based NPL recognition- the last 8-10% of loans will move to this
system in 2Q. Over FY11-14, we expect loans to grow at 19% Cagr, but
margin pressures and NPL provisions may cap profit growth to 15%.
Asset quality will be key to re-rating; we lower our target price to Rs570
based on 1.1x FY13 adjusted PB. Maintain O-PF.
Profit below estimates due to three key reasons
During 1QFY12, Canara’s profit declined by 28% YoY and was lower than our
estimate due to a combination of (1) lower topline growth, (2) decline in net
treasury income from 13% of PBT last year to -17% now and (3) higher NPL
provisions that also include provision towards RBI’s mandate for higher
provision on NPLs and restructured loans.
Healthy loan growth; but margin pressures cap topline growth
During 1QFY12, Canara Bank reported a healthy loan growth of 24% YoY and
1% QoQ- better than trends seen among some PSU banks. However, the NII
growth was modest at 4% YoY due to compression in margins and reversal of
income on NPLs. An aggressive focus on loan growth, lower CASA ratio (25%)
and slower CASA growth (10% YoY) has impacted NIMs by ~30bps. However,
the reported margins are down ~50bps QoQ due to reversal of income on
NPLs (~11% of NII). Fee growth was also low at 13% YoY.
Slippages rise, largely due to transition to new system
During 1Q, slippages were high with delinquency ratio at 3.2% of past year’s
loans. However, nearly half of the slippages arose from the transition to the
system-based NPL recognition and were mainly in the small ticket loans like
SME and agriculture loans. Slippages could be high in 2Q as well when the
last 8-10% of loans is moved to this system.
Maintain O-PF
With Tier I CAR at 9.6% (excluding profit for 1QFY12), Canara Bank is well
capitalised for growth and we expect loans to grow at 19% Cagr over FY11-
14. However, compression in margins and provisioning pressures would cap
profit growth at 15% Cagr. While profitability is healthy, we believe that it
may trade at a slight discount due to higher exposure to infrastructure sector-
16% of loans. We lower our target price to Rs570 based on 1.1x FY13 adj PB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Below expectations
Canara Bank’s net profit for 1QFY12 declined by 28% YoY to Rs7.3bn and
was below our estimates due to lower topline and higher provisioning.
We expect margin pressures to continue as the loan growth continues to
be higher than CASA growth. Asset quality pressures were high with
gross delinquency ratio of 3.2%, partly as the bank transitioned to the
system based NPL recognition- the last 8-10% of loans will move to this
system in 2Q. Over FY11-14, we expect loans to grow at 19% Cagr, but
margin pressures and NPL provisions may cap profit growth to 15%.
Asset quality will be key to re-rating; we lower our target price to Rs570
based on 1.1x FY13 adjusted PB. Maintain O-PF.
Profit below estimates due to three key reasons
During 1QFY12, Canara’s profit declined by 28% YoY and was lower than our
estimate due to a combination of (1) lower topline growth, (2) decline in net
treasury income from 13% of PBT last year to -17% now and (3) higher NPL
provisions that also include provision towards RBI’s mandate for higher
provision on NPLs and restructured loans.
Healthy loan growth; but margin pressures cap topline growth
During 1QFY12, Canara Bank reported a healthy loan growth of 24% YoY and
1% QoQ- better than trends seen among some PSU banks. However, the NII
growth was modest at 4% YoY due to compression in margins and reversal of
income on NPLs. An aggressive focus on loan growth, lower CASA ratio (25%)
and slower CASA growth (10% YoY) has impacted NIMs by ~30bps. However,
the reported margins are down ~50bps QoQ due to reversal of income on
NPLs (~11% of NII). Fee growth was also low at 13% YoY.
Slippages rise, largely due to transition to new system
During 1Q, slippages were high with delinquency ratio at 3.2% of past year’s
loans. However, nearly half of the slippages arose from the transition to the
system-based NPL recognition and were mainly in the small ticket loans like
SME and agriculture loans. Slippages could be high in 2Q as well when the
last 8-10% of loans is moved to this system.
Maintain O-PF
With Tier I CAR at 9.6% (excluding profit for 1QFY12), Canara Bank is well
capitalised for growth and we expect loans to grow at 19% Cagr over FY11-
14. However, compression in margins and provisioning pressures would cap
profit growth at 15% Cagr. While profitability is healthy, we believe that it
may trade at a slight discount due to higher exposure to infrastructure sector-
16% of loans. We lower our target price to Rs570 based on 1.1x FY13 adj PB.
No comments:
Post a Comment