Motilal Oswal recommends 'buy' on Canara Bank with 34% upside after 3-fold jump in Q2 profit

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Canara Bank share price was up over 4 percent intraday on October 27, a day after the state lender reported a three-fold jump in net profit to Rs 1,333 crore for the quarter ending September 2021 on the back of lower bad loan provisioning, rise in non-interest income and higher cash recovery.

The bank’s net profit was Rs 444 crore in the year-ago period.

Its net interest margin (NIM), however, declined to 2.72 percent in the quarter under review from 2.82 percent in the same period last year.

Net interest income (NII) was marginally lower at Rs 6,273 crore from Rs 6,305 crore, while total income rose 2.6 percent at Rs 21,331 crore.

The stock was trading at Rs 201.80, up Rs 8.40, or 4.34 percent, at 11.32 am. It has touched an intraday high of Rs 203.65 and an intraday low of Rs 198.

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Domestic research and broking firm Motilal Oswal has initiated "buy" recommendation on the stock with target of Rs 270 a share, an upside of 34 percent from the market price.

"Canara Bank reported healthy earnings for Q2 FY22, supported by high treasury gains, improving fee income and recovery from the DHFL resolution. On the business front, retail and agri exhibited a decent sequential recovery in loan growth, while the trend in the corporate segment remained muted," it said.

The bank's asset quality was largely stable despite higher slippages (SREI Infra) and was supported by higher recoveries and upgrades.

The bank’s restructured portfolio remained stable QoQ at 2.9 percent of loans, while SMA overdue declined to around 2 percent of loans.

“We expect Canara Bank's slippages to moderate as the corporate NPL cycle turns, driving a sustained reduction in its credit costs," it added.

"We estimate RoA/RoE of 0.8 percent/13.6 percent by FY24E. We resume coverage with a buy rating and a target price of Rs 270 (0.8x Sep-23E ABV)," the brokerage firm said.