Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Canara Bank (CBK IN)
N: 4QFY12 – continuing margin and asset quality woes
In line earnings, but low margins, continuing asset quality
stress, and low provision coverage worry us
Loan growth to pick up in FY13, but margins to continue to
remain weak; credit cost to increase from further slippages
Downgrade to N (from OW) with a revised TP of INR457 (from
INR544) based on an unchanged 5x PE multiple and a new
0.8x PB multiple (1.0x before)
4QFY12 earnings came in at INR8.29bn, declining 8% YoY. Of note in the quarter were
muted loan growth, low stable margins and higher asset quality slippages.
Operational review: CBK consolidated its growth in FY12, growing loan book only by
9% YoY vs industry growth of 19% YoY. Exposures to riskier segments like unsecured
short-term loans, SME loans and some retail segments were cut by 25%, 7.4% and 2%,
respectively in FY12. Agriculture and infrastructure growth remained healthy at 21% and
16.5% YoY. Liability profile weakened further with CASA ratio dipping by c440bp YoY
to 25%. This coupled with higher slippages resulted in NIM declining to 2.5% vs 3.1% in
FY11. 4Q NIM was stable at 2.5%. Asset quality stresses remained with loan slippages
increasing to 2%, partially offset by higher write-offs. However, recoveries from NPLs
and w/off accounts were lower in 4Q. While overall provision coverage stood at 67%
(RBI definition), specific coverage declined to just 16%. Bank also reported INR27.5bn
additions to restructured book that included one large aviation account, taking the total
restructured book to 5.3% of loans. CBK has a restructuring pipeline of cINR65bn, of
which SEB space is cINR55bn, which is likely to be completed in 1QFY13.
Earnings outlook: We expect loan growth to improve to industry levels in FY13 (c18%),
but expect margins to decline marginally in FY13 and FY14. Other income growth is
likely to remain muted as we do not see much traction in fees. Credit cost will increase
both from continuing asset quality stresses and low coverage ratio. Overall, we are now
cutting estimates by 10.5% for FY13 and 18% for FY14.
Valuations: CBK is currently trading at 12-month forward multiples of 5.3x PE and 0.8x
PB, versus its 5-yr average of 5.2x PE and 1x PB and versus average peer valuations of
5.5x PE and 0.8x PB. Given the continuing tough macro environment, management
change in 2HFY13 (Chairman retiring) and asset quality headwinds, we expect CBK to
trade on par with peers, which are facing similar issues. We therefore maintain our target
PE multiple at 5x, but reduce our target PB multiple to 0.8x from 1.0x, and lower our
target price to INR457 (from INR544), implying potential return of 11.7%. Downgrade to
Neutral. Key downside risks: 1) Higher slippages 2) management change in 2HFY13.
Key upside risks: 1) Improving macro economic scenario.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Canara Bank (CBK IN)
N: 4QFY12 – continuing margin and asset quality woes
In line earnings, but low margins, continuing asset quality
stress, and low provision coverage worry us
Loan growth to pick up in FY13, but margins to continue to
remain weak; credit cost to increase from further slippages
Downgrade to N (from OW) with a revised TP of INR457 (from
INR544) based on an unchanged 5x PE multiple and a new
0.8x PB multiple (1.0x before)
4QFY12 earnings came in at INR8.29bn, declining 8% YoY. Of note in the quarter were
muted loan growth, low stable margins and higher asset quality slippages.
Operational review: CBK consolidated its growth in FY12, growing loan book only by
9% YoY vs industry growth of 19% YoY. Exposures to riskier segments like unsecured
short-term loans, SME loans and some retail segments were cut by 25%, 7.4% and 2%,
respectively in FY12. Agriculture and infrastructure growth remained healthy at 21% and
16.5% YoY. Liability profile weakened further with CASA ratio dipping by c440bp YoY
to 25%. This coupled with higher slippages resulted in NIM declining to 2.5% vs 3.1% in
FY11. 4Q NIM was stable at 2.5%. Asset quality stresses remained with loan slippages
increasing to 2%, partially offset by higher write-offs. However, recoveries from NPLs
and w/off accounts were lower in 4Q. While overall provision coverage stood at 67%
(RBI definition), specific coverage declined to just 16%. Bank also reported INR27.5bn
additions to restructured book that included one large aviation account, taking the total
restructured book to 5.3% of loans. CBK has a restructuring pipeline of cINR65bn, of
which SEB space is cINR55bn, which is likely to be completed in 1QFY13.
Earnings outlook: We expect loan growth to improve to industry levels in FY13 (c18%),
but expect margins to decline marginally in FY13 and FY14. Other income growth is
likely to remain muted as we do not see much traction in fees. Credit cost will increase
both from continuing asset quality stresses and low coverage ratio. Overall, we are now
cutting estimates by 10.5% for FY13 and 18% for FY14.
Valuations: CBK is currently trading at 12-month forward multiples of 5.3x PE and 0.8x
PB, versus its 5-yr average of 5.2x PE and 1x PB and versus average peer valuations of
5.5x PE and 0.8x PB. Given the continuing tough macro environment, management
change in 2HFY13 (Chairman retiring) and asset quality headwinds, we expect CBK to
trade on par with peers, which are facing similar issues. We therefore maintain our target
PE multiple at 5x, but reduce our target PB multiple to 0.8x from 1.0x, and lower our
target price to INR457 (from INR544), implying potential return of 11.7%. Downgrade to
Neutral. Key downside risks: 1) Higher slippages 2) management change in 2HFY13.
Key upside risks: 1) Improving macro economic scenario.
No comments:
Post a Comment