Rekha Jhunjhunwala-Backed PSU Bank Stock Shed 3% After Q1 Results; Should You Buy?

Public sector lender, Canara Bank's share price traded in red on Tuesday despite healthy performance in the first quarter of FY23. The stock has dipped nearly 3% on BSE, and traded near its intraday low. The lender saw a healthy quarter with double-digit growth in both PAT and topline. Canara Bank is among the top 5 most valued holding in late market mogul Rakesh Jhunjhunwala's wife Rekha's portfolio.

At the time of writing, Canara Bank's share price traded at Rs 332.70 apiece, down by 2.06% on BSE. But the stock has dipped by at least 2.72% with an intraday low of Rs 330.45 apiece overall in the day.

In the previous session, the stock stood at Rs 339.70 apiece.

As per the shareholding pattern, Jhunjhunwala holds a total of 37,597,600 equity shares in Canara Bank. In percentage terms, the holding is at 2.1%.

Due to a heavy selloff, Rekha lost nearly Rs 34.8 crore in Canara Bank in a single day. On Tuesday, her holding in Canara Bank is valued at Rs 1,242.41 (37,597,600 X Tuesday's intraday low of Rs 330.45) compared to the previous day's Rs 1,277.19 crore (37,597,600 X Monday's closing price of Rs 339.70 apiece).

During the June 2023 quarter, Canara Bank posted a growth of 74.8% YoY in net profit to Rs 3,535 crore, while net interest income (NII) stood at Rs 8,666 crore rising by 27.72% YoY. Net interest margins were at 3.05% in the quarter, improving by 27 bps. In the quarter, gross advances jumped 13.27% YoY to Rs 8,87,671 crore, and global business climbed by 9.38% YoY to Rs 20,80,141 crore.

As of June 30, 2023, the bank's gross NPA was at 5.15% as against 5.35% in March 2023, and 6.98% as of June 2022. Net NPA came in at 1.57% as of June 2023 against 1.73% as at March 2023, 2.48% as at June 2022.

Should you buy Canara Bank shares after Q1 results?

In its research report, Motilal Oswal said, "CBK reported a steady performance as earnings beat estimates, led by higher 'other income' and lower provisions. Margins stood broadly flat, while asset quality witnessed a steady improvement. Loan growth was primarily led by Corporate, Retail, and Agri segments and the outlook remains positive. While slippages and SMA books increased sequentially, there has been significant improvement in asset quality ratios overall. We raise our estimates slightly and expect CBK to deliver FY25E RoA/RoE of 1.1%/17.2%. We reiterate our BUY rating with a TP of Rs 425 (premised on 0.9x FY'25E ABV)."

Also, Antique Stock Broking's note said, "Overall earnings trajectory has improved from the past, but if we look at 1% RoA over the last two quarters, it has been supported by income that may be non-recurring (recoveries from written-off loans, PSLC income) and hence to consistently deliver +1% RoA, improvement in core parameters and asset quality (though credit cost has room to normalize) would be the key. We largely maintain our earnings estimate and expect RoA and RoE of ~0.9 and 18% (leverage of 19-20x) over FY24/ 25E (1QFY24 CET 1 of 11.5%)."

Further, it added, "CBK is consistently delivering on asset quality and stability in NIM is a key positive. Having gone through the consolidation, we believe CBK would also be a beneficiary of the credit cost cycle. However, RoA of 1% has got a push from income streams that can be volatile (0.9% of average assets in 1QFY24 vs. 0.5% over 1QFY21-3QFY23). Therefore, we still expect the bank to deliver RoA of 0.9% over FY24-25E. Maintain BUY."

Thereby, Antique Stock Broking has set a target price of Rs 400, higher than earlier TP of Rs 390 on Canara Bank.