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¾ CBK’S Q4FY12 NII at Rs20.4bn - inline with est. However,
muted non-int inc and higher employee and provision cost
dragged net profit. PAT at Rs8.3bn was lower than est
¾ Q4FY12 Slipp. at Rs11.2bn (1.4% ann.) and restructuring at
Rs27bn (1.2%). Despite higher NPA prov, PCR remains low at
16%. Rec/Upg at 60% of op NPL remains the only +ve
¾ NIM at 2.2%(calc) dragged by a) lower CASA mix (24%) b)
lower share of high yielding assets (25% of loans) and c)
excess reliance on bulk deposits (42% of deposits)
¾ Downgrade to REDUCE on concerns over a) NNPL / networth
at 15%, b) slipp in restructured book at 30% and c) huge
restructuring pipeline in Q1FY13 calling for higher prov
Results inline; higher rest pipeline to keep pressure on profitability
Canara Bank Q4FY12 NII grew by 3.4%yoy, inline with expectation. The growth in NII
was led by 6%qoq growth in advances even as NIM’s remained stable at 2.5%.
However led by lower other income and higher employee expense operating profit came
in lower than expected at Rs14.9bn. Further led by higher NPA provisioning, net profit
declined by 7.8% yoy to Rs8.3bn.
While the broad asset quality remained stable with GNPA remaining flat sequentially,
slippage was substantially higher at Rs11.2bn which was partially offset by higher write
offs at Rs5.3bn. Of the total slippages, Rs7.94 was attributed to large industries which
was spread across sectors. Restructuring was also higher at Rs27.5bn, which included
Rs14.8bn of Air India restructuring. The bank hasn’t taken any SEB restructuring till
date, and has guided for Rs55bn of SEB restructuring in Q1FY13. As a result of which
the provisioning requirements will remain higher.
High restructuring pipeline to keep pressure on profitability
CBK’S outstanding restructured book which currently is at Rs80bn, 3.4% of the total
advances, will double in Q1FY13 as the management guided for SEB restructuring of
Rs55bn coupled with Rs10bn of additional restructuring in the next quarter. While there will
not be any NPV hit on the SEB restructuring, standard asset restructuring of 2% will keep
the provisioning at significantly higher levels, keeping the profitability under tremendous
pressure.
Valuations and view
While the banks margin continue to remain lower at 2.2%(calc.), we believe with consistent
decline in CASA levels and increasing reliance on bulk deposit, the NIM’s will further come
under pressure in FY13/14. Moreover with substantially reduced provisions on incremental
NPAs at 55-60% over FY11-12E, the reported PCR stands lowest amongst peers at 16%.
On top of that, with huge restructuring pipeline, provisioning requirement are likely to remain
high, hence further impact the profitability in FY13/14. We expect the RoAs to remain sub
1% over FY13-14E driven by subdued margins at 2.1% and high credit cost at 70bps. We
see very limited upside in the stock despite cheap valuations at 0.9x/0.8x FY13E/ FY14
ABV. Downgrade to REDUCE with price target of Rs410.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
¾ CBK’S Q4FY12 NII at Rs20.4bn - inline with est. However,
muted non-int inc and higher employee and provision cost
dragged net profit. PAT at Rs8.3bn was lower than est
¾ Q4FY12 Slipp. at Rs11.2bn (1.4% ann.) and restructuring at
Rs27bn (1.2%). Despite higher NPA prov, PCR remains low at
16%. Rec/Upg at 60% of op NPL remains the only +ve
¾ NIM at 2.2%(calc) dragged by a) lower CASA mix (24%) b)
lower share of high yielding assets (25% of loans) and c)
excess reliance on bulk deposits (42% of deposits)
¾ Downgrade to REDUCE on concerns over a) NNPL / networth
at 15%, b) slipp in restructured book at 30% and c) huge
restructuring pipeline in Q1FY13 calling for higher prov
Results inline; higher rest pipeline to keep pressure on profitability
Canara Bank Q4FY12 NII grew by 3.4%yoy, inline with expectation. The growth in NII
was led by 6%qoq growth in advances even as NIM’s remained stable at 2.5%.
However led by lower other income and higher employee expense operating profit came
in lower than expected at Rs14.9bn. Further led by higher NPA provisioning, net profit
declined by 7.8% yoy to Rs8.3bn.
While the broad asset quality remained stable with GNPA remaining flat sequentially,
slippage was substantially higher at Rs11.2bn which was partially offset by higher write
offs at Rs5.3bn. Of the total slippages, Rs7.94 was attributed to large industries which
was spread across sectors. Restructuring was also higher at Rs27.5bn, which included
Rs14.8bn of Air India restructuring. The bank hasn’t taken any SEB restructuring till
date, and has guided for Rs55bn of SEB restructuring in Q1FY13. As a result of which
the provisioning requirements will remain higher.
High restructuring pipeline to keep pressure on profitability
CBK’S outstanding restructured book which currently is at Rs80bn, 3.4% of the total
advances, will double in Q1FY13 as the management guided for SEB restructuring of
Rs55bn coupled with Rs10bn of additional restructuring in the next quarter. While there will
not be any NPV hit on the SEB restructuring, standard asset restructuring of 2% will keep
the provisioning at significantly higher levels, keeping the profitability under tremendous
pressure.
Valuations and view
While the banks margin continue to remain lower at 2.2%(calc.), we believe with consistent
decline in CASA levels and increasing reliance on bulk deposit, the NIM’s will further come
under pressure in FY13/14. Moreover with substantially reduced provisions on incremental
NPAs at 55-60% over FY11-12E, the reported PCR stands lowest amongst peers at 16%.
On top of that, with huge restructuring pipeline, provisioning requirement are likely to remain
high, hence further impact the profitability in FY13/14. We expect the RoAs to remain sub
1% over FY13-14E driven by subdued margins at 2.1% and high credit cost at 70bps. We
see very limited upside in the stock despite cheap valuations at 0.9x/0.8x FY13E/ FY14
ABV. Downgrade to REDUCE with price target of Rs410.
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