Canara Bank, 12th February 2013

7/29/2019 Canara Bank, 12th February 2013

1/11

Please refer to important disclosures at the end of this report 1

Pre-prov. profit 1,516 1,282 18.3 1,577 (3.8)

Source: Company, Angel Research

Canara Bank reported a subdued operating performance, as its pre-provisioning

profit declined by 3.8% yoy, which was in-line with our expectations. Asset quality

pressures continued for the bank during the quarter, as slippages remained

elevated, which resulted in 24.9% yoy increase in provisioning expenses and

consequent 18.9% yoy decline in bottom-line.

During

3QFY2013, the banks advance book remained almost flat on a yoy basis, while

deposits grew at a subdued pace of 2.7% yoy. Current deposits grew by 3.4%

yoy, while the saving deposits grew by 8.4% yoy. Calculated CASA ratio for the

bank improved by 24bp sequentially to 25.1%. Sequentially, the banks yield on

advances came in 8bp lower to 11.1%, which resulted in a 17bp sequential fall in

the reported NIMs. Non-interest income (excluding treasury) witnessed a decline

of 4.4% yoy, on back of lower recoveries from written off accounts and de-growth

in CEB income. During 3QFY2013, the bank witnessed continued asset quality

pressures, as slippages, on an absolute basis, remained elevated at `1,314cr,

(though lower sequentially considering slippages of `1,922cr in 2QFY2013 and

`1,497cr in 1QFY2013). Incremental slippages during the quarter were broad-

based and granular in nature, except for one account each in infrastructure and

education sector, amounting to more than `50cr each. However,

recoveries/upgrades came in at `217cr compared to `662cr in 2QFY2013 and

`657cr in 1QFY2013. Hence, gross and net NPA levels for the bank increased

sequentially by 8.6% and 12.4%, respectively. As of 3QFY2013, the gross NPA

ratio stood at 2.8%, higher by 19bp sequentially, while the net NPA ratio stood at

2.4%, higher sequentially by 23bp from. PCR dipped sequentially by 202bp to

61.0%. Additionally, the bank restructured `857cr worth of accounts during the

quarter (of which around 50% came from 3 chunky accounts in the steel sector),

which is higher than `610cr restructured in 2QFY2013, thereby taking its

outstanding restructured book to `14,501cr.

At the current market price, the stock trades at cyclically

moderate valuation of 0.8x FY2014E ABV vs eight-year average of 1.1x and

range of 0.7-1.4x.

.

% chg 35.5 (0.1) 2.3 14.8

% chg 33.2 (18.5) (12.6) 27.0

NIM (%) 2.6 2.2 2.1 2.3

P/E (x) 4.9 6.0 6.9 5.4

P/ABV (x) 1.1 1.0 0.9 0.8

RoA (%) 1.3 0.9 0.7 0.9

RoE (%) 26.4 17.0 13.2 15.0


CMP `446

Target Price `517

Investment Period 12 months

Stock Info

Sector Banking

Market Cap (` cr) 19,745

Beta 1.1

52 Week High / Low 566/306

Avg. Daily Volume 85,774

Face Value (`

) 10BSE Sensex 19,485

Nifty 5,904

Reuters Code CNBK.BO

Bloomberg Code CBK@IN

Shareholding Pattern (%)

Promoters 67.7

MF / Banks / Indian Fls 13.2

FII / NRIs / OCBs 12.8Indian Public / Others 6.2

Abs. (%) 3m 1yr 3yr

Sensex 3.4 10.0 22.3

Canara Bank 0.7 (15.0) 14.8

022 3935 7800 Ext: 6808

[email protected]

022 3935 7800 Ext: 6872

[email protected]

Performance Highlights

3QFY2013 Result Update | Banking

February 8, 2013


2/11

Canara Bank | 3QFY2013 Result Update

February 8, 2013 2

Exhibit 1:3QFY2013 performance (Standalone)

- on Advances / Bills 5,958 6,121 (2.7) 5,946 0.2 18,307 17,254 6.1- on investments 2,460 2,306 6.7 1,810 35.9 6,806 5,145 32.3

- on balance with RBI & others 127 169 (24.6) 56 126.0 500 183 172.6

2,146 2,158

Other income excl. treasury 595 534 11.4 622 (4.4) 1,723 1,929 (10.7)

- Fee Income 199 171 16.4 205 (2.9) 565 583 (3.0)

- Treasury Income 251 74 239.2 157 59.9 424 229 85.1

- Recov. from written off a/cs 59 64 (7.8) 68 (13.2) 170 265 (35.8)

- Others 337 299 12.6 349 (3.5) 988 1,082 (8.7)

- Employee expenses 831 791 5.1 713 16.6 2,365 2,147 10.2

- Other Opex 486 492 (1.1) 408 19.1 1,377 1,208 14.0

- Provisions for NPAs 594 444 33.7 142 318.3 1,515 904 67.7

- Provisions for Investments (129) (120) - 185 - (454) 261 -

- Other Provisions 161 97 65.9 174 (7.6) 404 234 72.7

Provision for Tax 180 200 (10.0) 200 (10.0) 580 600 (3.3)

20.2 23.2 (302)bp 18.6 162bp 21.3 19.6 162bp


Exhibit 2:3QFY2013 Actual vs EstimatesNII 1,988 2,004 (0.8)

Non-interest income 846 826 2.4

Operating expenses 1,317 1,299 1.5

Provisions & cont. 626 647 (3.3)

PBT 890 884 0.7

Prov. for taxes 180 200 (10.0)



3/11


February 8, 2013 3

Exhibit 3:3QFY2013 performance analysis (Standalone)

Advances (`cr) 218,242 215,751 1.2 219,253 (0.5)Deposits (`cr) 323,963 336,762 (3.8) 315,456 2.7

Credit-to-Deposit Ratio (%) 67.4 64.1 330bp 69.5 (214)bp

Current deposits (` cr) 12,473 13,062 (4.5) 12,059 3.4

Saving deposits (`cr) 68,689 70,494 (2.6) 63,361 8.4

CASA deposits (`cr) 81,162 83,556 (2.9) 75,420 7.6

Calculated CASA ratio (%) 25.1 24.8 24bp 23.9 114bp

CAR (%) 12.6 13.1 (43)bp 13.2 (58)bp

Tier 1 CAR (%) 9.8 10.1 (33)bp 9.5 28bp

Cost of deposits 7.8 7.8 (2)bp 7.3 54bp

Yield on advances 11.1 11.2 (8)bp 10.9 27bp

Yield on investments 8.1 8.1 0bp 7.9 20bp

Yield on funds 9.1 9.2 (8)bp 8.8 30bp

Cost of funds 7.0 7.1 (10)bp 6.6 44bp

Reported NIMs 2.4 2.5 (17)bp 2.5 (16)bp

Cost-to-income ratio 46.5 50.0 (352)bp 41.6 494bp

Gross NPAs (`cr) 6,090 5,610 8.6 3,999 52.3

Gross NPAs (%) 2.8 2.6 19bp 1.8 96bp

Net NPAs (`cr) 5,134 4,569 12.4 3,265 57.2

Net NPAs (%) 2.4 2.1 23bp 1.5 86bp

PCR incl. tech. w/offs (%) 61.0 63.0 (202)bp 67.9 (686)bp

Slippage ratio (%) 2.3 3.3 (105)bp 1.6 64bp

NPA to avg. assets (%) 0.6 0.5 15bp 0.2 46bp


Advances remain flat; NIM declines 17bp sequentially

During 3QFY2013, the banks advance book remained almost flat on a yoy basis,

while deposits grew at a subdued pace of 2.7% yoy. Within advances, the agri

loan book grew by 13.4% yoy, while retail advances came off by 14.8% yoy.

While growth in current deposits remained subdued at 3.4% yoy, saving deposits

registered a relatively higher growth of 8.4% yoy. Consequently, overall CASA

deposits grew by 7.6% yoy, much higher than the modest growth registered in

overall deposits (due to shedding of differential rate deposits). Consequently, the

calculated CASA ratio for the bank improved by 114bp yoy (higher by 24bp

sequentially) to 25.1%. The bank still has relatively higher proportion of differential

rate deposits to total deposits (~29% as of 3QFY2013). Going ahead, the bank

can be expected to significantly shed down these deposits.

Sequentially, the banks yield on advances came in lower by 8bp to 11.1%, which

resulted in a 17bp sequential fall in the reported NIM. Yield on investments for thebank remained flat sequentially at 8.2%. The banks cost of deposits also remained

largely flat sequentially at 7.8%.


4/11


February 8, 2013 4

Exhibit 4:Advances remained flat on a yoy basis


Exhibit 5:Calculated CASA ratio improves sequentially


Exhibit 6:NIM declines by 17bp qoq, due to...


Exhibit 7:...8bp fall in YoF, partly on higher slippages


Non-interest income (excluding treasury) declines on lower

recoveries and de-growth in fee income

During 3QFY2013, the bank witnessed subdued performance on the non-interest

income (excluding treasury) front, which declined by 4.4% yoy to `595cr, on back

of lower recoveries from written off accounts and de-growth in CEB (Commission,

exchange and brokerage) income. While the CEB income for the bank witnessed

de-growth of 2.9% yoy to `199cr, recoveries from written-off accounts declined by

13.2% yoy to `59cr. During the quarter, the bank booked profit on stake sale in

CARE (~`160cr) and reported substantial treasury income of `251cr during the

quarter compared to `157cr in 3QFY2012. Aided by substantially higher treasury

income, the overall non-interest income for the bank witnessed moderate growth

of 8.6% yoy to `846cr.

15.5

9.4

4.9 (1

.0)

(0.5

)19.7

11.3

11.5

7.7

2.7

69.5

71.1

67.4

64.1

67.4

60.0

62.0

64.0

66.0

68.0

70.0

72.0

(7.0)

-

7.0

14.0

21.0

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13

Adv. yoy chg (%) Dep. yoy chg (%) CDR (%, RHS)

23.9

24.3

23.3

24.8

25.1

(1.4)(4.2)

2.4 3.4

7.6

(10.0)

-

10.0

20.0

30.0

20.0

22.5

25.0

27.5

30.0


Calculated CASA rat io CASA yoy growth (%, RHS)

2.52 2.502.40

2.532.36

1.00

1.50

2.00

2.50

3.00


(%)

8.79

8.95

9.10

9.17

9.09

8.60

8.70

8.80

8.90

9.00

9.10

9.20


(%)


5/11


February 8, 2013 5

Exhibit 8:Non-interest income declines on lower recoveries and fee income de-growthCEB 199 171 16.4 205 (2.9)

Treasury 251 74 239.2 157 59.9Recoveries 59 64 (7.8) 68 (13.2)

Others 337 299 12.6 349 (3.5)

Other income excl. treasury 595 534 11.4 622 (4.4)


Asset quality pressures continue

During 3QFY2013, the bank witnessed continued asset quality pressures, as

slippages, on an absolute basis, remained elevated at `1,314cr, (though lower

sequentially considering slippages of `1,922cr in 2QFY2013 and `1,497cr in

1QFY2013). Incremental slippages during the quarter were broad-based and

granular in nature, except for one account each in infrastructure and education

sector, amounting to more than `50cr each. Going ahead, the management has

guided caution on the asset quality outlook. However, recoveries/upgrades came

in at `217cr compared to `662cr in 2QFY2013 and `657cr in 1QFY2013. Hence,

gross and net NPA levels for the bank witnessed a sequential increase of 8.6% and

12.4%, respectively. As of 3QFY2013, the gross NPA ratio stood at 2.8%, higher

by 19bp sequentially from 2.6% in 2QFY2013, while the net NPA ratio stood at

2.4%, higher sequentially by 23bp from 2.1% in 2QFY2013. PCR dipped

sequentially by 202bp to 61.0%.

Additionally, the bank restructured `857cr worth of accounts during the quarter (of

which around 50% came from 3 chunky accounts in the steel sector), which was

higher than `610cr restructured in 2QFY2013, thereby taking its outstanding

restructured book to `14,501cr.

Exhibit 9:Slippages remain at elevated levels...


Exhibit 10:...Hence, NPA levels higher sequentially

Source: Company, Angel Research; Note: PCR including tech. write-offs

1.6

2.1

2.6

3.3

2.3

0.2

0.40.5 0.5

0.6

-

0.2

0.4

0.6

0.8

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5


Slippages (%) Credit cost (%, RHS)

1.8

1.7

2.0

2.6

2.8

1.5

1.5

1.7

2.1

2.4

67.9 67.6 66.5

63.061.0

50.0

56.0

62.0

68.0

74.0

80.0

-

0.5

1.0

1.5

2.0

2.5

3.0


Gross NPAs (%) Net NPAs (%) PCR (%, RHS)


6/11


February 8, 2013 6

Exhibit 11:Branch expansion trends


Exhibit 12:Opex.-to-avg. assets ratio higher qoq


Investment concerns

Weak liability franchise likely to keep NIM under pressure

The bank has a relatively weak liability profile with a calculated CASA base at

25.1% as of 3QFY2013. The bank has relatively high proportion of more costly

bulk deposits, which increases the banks exposure to interest rate movements.

Due to low credit-deposit ratio of 67.4% in 3QFY2013 and elevated slippages,

margins continued to remain under check at under 2.4%. However going ahead,

the bank is expected to significantly shed down its high-costs bulk deposits

portfolio. Also, the bank has embarked on a relatively aggressive network

expansion plan. Over the past eighteen months, the bank has added over 400

branches and 772 ATMs. Such a pace of network expansion should augur well, in

our view, for strengthening the banks relatively weak liability franchise.

Outlook and valuation

At the current market price, the stock trades at a cyclically moderate valuation of

0.8x FY2014E ABV vs eight-year average of 1.1x and range of 0.7-1.4x.

3,569

3,600 3,6093,655 3,681

2,900

3,050

3,200

3,350

3,500

3,650

3,800


41.6

46.9

45.0

50.0

46.5

1.2

1.4

1.2

1.3 1.4

-

0.2

0.4

0.6

0.8

1.0

1.21.4

1.6

20.0

25.0

30.0

35.0

40.0

45.0

50.0


Cost-to-income ratio (%) Opex to average assets (%, RHS)


7/11


February 8, 2013 7

Exhibit 13:Key assumptions

Credit growth 8.0 15.0 6.0 15.0Deposit growth 7.0 11.0 4.0 10.0

CASA ratio 25.3 25.6 25.8 26.3

NIMs 2.1 2.2 2.1 2.3

Other income growth 0.7 (1.0) (0.3) 1.7

Growth in staff expenses 11.0 11.0 7.5 7.5

Growth in other expenses 7.5 7.5 12.5 5.0

Slippages 2.9 2.2 2.7 2.0

Coverage 64.0 65.0 63.0 65.0

Source: Angel Research

Exhibit 14:Change in estimates

NII 7,879 7,863 (0.2) 9,086 9,030 (0.6)

Non-interest income 2,949 2,920 (1.0) 2,919 2,970 1.7

Operating expenses 5,128 5,109 (0.4) 5,628 5,445 (3.3)

Provisions & cont. 2,023 2,043 1.0 1,630 1,698 4.2

PBT 3,677 3,631 (1.2) 4,747 4,857 2.3

Prov. for taxes 809 763 (5.7) 1,187 1,214 2.3

Source: Angel Research

Exhibit 15:P/ABV band


0

200

400

600

800

1000

Apr-06

Sep-0

6

Feb-0

7

Jul-07

Dec-0

7

May-0

8

Oct-08

Mar-09

Aug-0

9

Jan-1

0

Jun-1

0

Nov-1

0

Apr-11

Sep-1

1

Feb-1

2

Jul-12

Dec-1

2

Price (`) 0.75x 1x 1.25x 1.5x 1.75x


8/11


February 8, 2013 8

Exhibit 16:Recommendation summary

AxisBk Buy 1,453 1,753 20.6 1.95 2.4 10.5 16.4 1.6 20.1

FedBk Accumulate 516 557 7.9 1.25 1.4 10.0 6.4 1.2 13.1

HDFCBk Neutral 650 - - 3.66 - 18.0 28.1 1.8 22.1

ICICIBk* Buy 1,130 1,404 24.2 1.81 2.2 13.4 22.8 1.5 15.9

SIB Buy 27 34 26.0 1.11 1.4 6.6 6.9 1.0 17.7

YesBk Accumulate 510 576 13.1 2.56 2.9 11.9 24.1 1.5 23.6

AllBk Buy 148 183 23.7 0.65 0.8 4.4 (5.2) 0.8 14.7

AndhBk Neutral 103 - - 0.71 - 4.7 (4.6) 0.8 13.8

BOB Buy 768 935 21.7 0.90 1.1 5.7 5.0 1.0 16.7

BOI Accumulate 341 380 11.4 0.85 1.0 5.2 18.2 0.8 16.0

BOM Neutral 55 - - 0.67 - 4.3 44.3 0.6 16.9

CentBk Neutral 76 - - 0.69 - 3.8 95.5 0.5 14.3

CorpBk Buy 408 517 26.7 0.63 0.8 4.1 (3.1) 0.8 14.9

DenaBk Buy 103 124 19.6 0.63 0.8 4.2 3.5 0.8 15.9

IDBI# Buy 100 122 22.1 0.61 0.8 4.5 18.4 0.9 14.1

IndBk Buy 183 221 20.8 0.68 0.8 4.5 1.9 1.1 16.2

IOB Buy 76 88 16.7 0.51 0.6 3.7 23.9 0.6 13.4

J&KBk Accumulate 1,318 1,406 6.7 1.12 1.2 6.6 9.8 1.4 18.2

OBC Accumulate 303 336 10.9 0.68 0.8 5.1 23.2 0.8 13.5

PNB Buy 864 1,053 21.9 0.90 1.1 5.1 8.0 1.0 17.5

SBI* Accumulate 2,286 2,600 13.7 1.48 1.7 8.9 21.5 1.0 17.7

SynBk Buy 127 153 19.9 0.71 0.9 4.6 13.1 0.8 16.5

UcoBk Neutral 67 - - 0.80 - 4.5 2.5 0.5 13.8

UnionBk Buy 233 286 22.8 0.77 1.0 5.0 20.7 0.8 16.6

UtdBk Buy 67 83 22.8 0.49 0.6 3.1 20.0 0.7 16.3

VijBk Accumulate 55 58 5.7 0.64 0.7 5.0 9.7 0.5 12.6

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF

Company Background

Canara Bank is the largest south-based PSU bank (overall fifth largest bank in

India), with a balance sheet size of around `3.8lakh cr. The bank has a reasonably

large pan-India presence, with about 45% of its 3,600+ branches outside South

India (the bank also has 3,200+ ATMs).


9/11


February 8, 2013 9

Income statement (Standalone)

- YoY Growth (%) 33.4 20.4 35.5 (0.1) 2.3 14.8

- YoY Growth (%) 5.1 17.7 (1.6) 4.1 (0.3) 1.7

- YoY Growth (%) 22.2 19.5 23.1 1.0 1.6 11.3

- YoY Growth (%) 9.8 13.5 27.1 5.8 9.3 6.6

- YoY Growth (%) 33.5 24.1 20.4 (2.4) (4.5) 15.5

- YoY Growth (%) 31.1 (17.8) (14.0) 74.6 9.8 (16.9)

- YoY Growth (%) 35.0 48.6 31.5 (18.8) (11.1) 33.8

- as a % of PBT 19.4 20.9 19.9 19.6 21.0 25.0

- YoY Growth (%) 32.4 45.8 33.2 (18.5) (12.6) 27.0

Share Capital 410 410 443 443 443 443Reserve & Surplus 11,798 14,262 19,597 22,247 24,498 27,342

Deposits 186,893 234,651 293,437 327,054 340,136 374,149

- Growth (%) 21.3 25.6 25.1 11.5 4.0 10.0

Borrowings 7,057 1,041 5,198 6,558 9,831 10,789

Tier 2 Capital 6,944 7,399 9,063 8,967 8,743 8,524

Other Liab. & Prov. 6,498 6,977 8,207 8,891 9,571 10,297

Cash Balances 10,037 15,719 22,015 17,795 15,306 14,966

Bank Balances 6,623 3,934 8,693 10,384 9,831 10,789

Investments 57,777 69,677 83,636 102,057 109,719 109,393

Advances 138,219 169,335 211,268 232,490 246,439 283,405

- Growth (%) 28.9 22.5 24.8 10.0 6.0 15.0

Fixed Assets 2,929 2,859 2,844 2,858 2,913 3,101

Other Assets 4,014 3,217 7,488 8,576 9,013 9,891

- Growth (%) 21.7 20.6 26.9 11.4 5.1 9.7


10/11


February 8, 2013 10

Ratio analysis (Standalone)

NIMs 2.4 2.4 2.6 2.2 2.1 2.3Cost to Income Ratio 42.9 40.7 42.0 44.0 47.4 45.4

RoA 1.0 1.2 1.3 0.9 0.7 0.9

RoE 22.6 26.8 26.4 17.0 13.2 15.0

CASA Ratio 30.1 29.1 28.3 24.3 25.8 26.3

Credit/Deposit Ratio 74.0 72.2 72.0 71.1 72.5 75.7

CAR 14.1 13.4 15.4 13.8 14.0 13.9

- Tier I 8.0 8.5 10.9 10.4 10.9 11.1

Gross NPAs 1.6 1.5 1.5 1.7 3.0 3.3

Net NPAs 1.1 1.1 1.1 1.5 2.2 2.0

Slippages 2.2 2.4 2.1 2.2 2.7 2.0

Loan Loss Prov. /Avg. Assets 0.5 0.6 0.3 0.4 0.5 0.3

Provision Coverage 30.5 77.7 73.0 67.6 63.0 65.0

EPS 50.5 73.7 90.9 74.1 64.8 82.2

ABVPS (75% cover.) 221.3 305.8 401.1 448.1 477.2 544.2

DPS 8.0 10.0 11.0 11.0 12.0 15.5

PER (x) 8.8 6.0 4.9 6.0 6.9 5.4

P/ABVPS (x) 2.0 1.5 1.1 1.0 0.9 0.8

Dividend Yield 1.8 2.2 2.5 2.5 2.7 3.5

NII 2.4 2.3 2.6 2.2 2.0 2.2

(-) Prov. Exp. 0.8 0.5 0.4 0.5 0.5 0.4

Adj. NII 1.6 1.8 2.2 1.6 1.5 1.8

Treasury 0.3 0.4 0.1 0.1 0.1 0.0

Int. Sens. Inc. 1.9 2.2 2.3 1.7 1.6 1.8

Other Inc. 0.9 0.8 0.9 0.7 0.6 0.7

Op. Inc. 2.8 3.0 3.1 2.5 2.3 2.5

Opex 1.5 1.4 1.5 1.3 1.3 1.3PBT 1.3 1.6 1.7 1.1 0.9 1.2

Taxes 0.3 0.3 0.3 0.2 0.2 0.3

Leverage 21.8 21.5 19.7 18.4 17.6 17.0


11/11


February 8, 2013 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Canara Bank

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Documents

Canara Bank, 12th February 2013