Canara Bank Q3 Results Review - Lower Provisions Aid Earnings; Asset Quality Improves: Motilal Oswal

Motilal Oswal Report

Canara Bank reported Q3 FY24 standalone profit after tax at Rs 36.6 billion (up 27% YoY, in line), driven by lower provisions. Net interest income grew 9.5% YoY (in line), while margins improved 3 bp QoQ to 3.03%.

Other income grew 8% YoY to Rs 43 billion (down 7% QoQ, 6% miss). Opex grew 23% YoY to Rs 69.1 billion (17% QoQ growth, 8% beat). Pre-provision operating profit, thus, declined 2% YoY (7% miss). The cost/income ratio rose to 50.4% due to wage revisions at 17%.

On the business front, the loan book grew 13% YoY (3.2% QoQ), driven by healthy traction in retail and corporate loans. Canara Bank's deposits grew 8.5% YoY (2.5% QoQ) to Rs 12.6 trillion, led by 14% YoY growth in term deposits. The current account and savings account ratio, thus, moderated 50 bp QoQ to 31.7%.

Asset quality ratios improved significantly, with credit costs falling below 1%. Fresh slippages stood at Rs 26.97 billion versus Rs 29.87 billion in Q2 FY24. Return on asset/return on equity stood at 1.01%/21.95%.

We broadly maintain our earnings per share estimates and expect Canara Bank to deliver FY25E RoA/RoE of 1.1%/19.5%. Reiterate 'Buy' with a target price of Rs 570.

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