Canara Bank Q1 Results Review - Margins Moderate; Earnings Steady: Dolat Capital

Dolat Capital Report

Canara Bank reported lower than expected net interest income growth at 6% YoY with 17 bps sequential decline in reported NIM to 2.9%. Profits were in-line, as higher other income and low credit costs offset the impact. NIM was partly impacted by accounting change around penal interest, which is now recognized under other income.

Sequential loan growth at 2% was led by 12% QoQ growth in retail credit, mainly led by gold loans. We expect the benefits of recoveries on P&L (both from gross non-performing asset and WO pool) to gradually start fading, thereby hurting the earnings profile.

Canara Bank also has lower provision coverage ratio (at 71%) and limited standard provision buffers relative to public sector bank peers.

Tweaking estimates, we factor in slightly lower credit costs at 11.1% over FY25/26E. With unrevised target price of Rs 105 (1.1 times FY26E price-to-book value), we maintain our ‘Sell’ rating driven by rich valuations (1.1x FY26E) against RoA/RoE of 1%/16% for FY25E.

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