Brokerages Motilal Oswal, JM Financial and Emkay Global have recommended BUY and raised their target price on PSU lender, Canara Bank which is scheduled to split next week. Canara Bank is splitting for the first time and in the ratio of 1:5. Apart from this, the lender has also announced its highest-ever dividend payout of Rs 16.10 per share.
Canara Bank Share Price:
By the end of the May 10th trading session, Canara Bank's share price stood at Rs 548.50 apiece with a market cap of Rs 99,505.04 crore on NSE. The stock's 52-week high and low are at Rs 632.90 apiece and Rs 291.35 apiece respectively.
YTD, the stock price is up by 24% on the exchange.
Canara Bank Dividend:
The PSU lender has recommended a dividend of Rs .16.10/- per equity share (i.e., 161%) of the face value of Rs.10/- each to the shareholders for the year 2023-24. The company fixed June 17, 2024, as the record date for determining eligible shareholders.
The latest dividend payout is higher compared to the dividend of 120% amounting to Rs 12 per share paid in 2023 for the financial year 2022-23.
Canara Bank Stock Split:
This lender is going to split for the first time. The stock split ratio is 1:5, meaning, 1 existing equity share of Canara Bank will be split into 5 smaller shares. Notably, the share capital reserves will remain the same. The face value of Rs 10 will be split into Rs 2 each. The record date for the stock split is fixed on May 15, 2024.
How much cheaper Canara Bank shares will be, by how much investors' a number of shares will rise, and will their investment value impact the stock split day?
Example:
1. If we take at the current market price of Canara Bank which is Rs 548.20 apiece, and split it by 5 times. Then, adjusted to the stock split, the share price gets cheaper and lower to Rs 109.64 (Rs 548.20 divided by 5).
2. This will also lead to a rise in the number of shares as well. For instance, if you held 50 shares of Canara Bank at Rs 548.20 per share, then your shares will be 5 times. At a 1:5 split, 50 shares will become 250 shares (50 shares X 5) at Rs 109.64 per share.
3. Meanwhile, your investment value will remain the same. 50 shares at Rs 548.20 apiece is valued at Rs 27,410. After the split, 250 shares at Rs 109.64 per share, will be still valued at Rs 27,410.
Canara Bank Share 2024 Target Price:
Motilal Oswal On Canara Bank:
CBK reported healthy but in-line earnings in 4QFY24, led by higher other income, which was partially offset by higher-than-expected provisions. Healthy NII growth led to a 4bp QoQ margin expansion. However, the management expects NIMs at ~2.9-3% in FY25. Loan growth was led by the retail segment. Deposit growth has gained pace, driven by CASA deposits, and the outlook remains encouraging. Fresh slippages increased sequentially; however, overall asset quality ratios improved.
We broadly maintain our earnings estimates and expect CBK to deliver FY26 RoA/RoE of 1.1%/18.4%. We reiterate our BUY rating with a TP of Rs 650 (1x FY26E ABV).
JM Financial On Canara Bank:
Canara Bank's management guides for NIMs to remain stable at ~3% going forward. Staff costs remained slightly elevated which mgmt. clarified was primarily driven by actual provisions and gratuity benefits related to the previous wage hike, totalling INR 3.5bn as against an earlier estimated amount of INR 2.5bn. However, mgmt. remains confident of employee costs to stabilise hereon and expects the cost to income ratio to be restricted to 47%. Asset quality metrics continued to improve with GNPL/NNPL at 4.23%/1.27% (-16bps QoQ, -5bps QoQ) and PCR at a healthy 71%. With the bank consistently maintaining stable NIMs, ongoing moderation in credit costs and sustained RoA of ~1% for several quarters, we expect CBK's rating to continue going ahead. We build in RoA/ROE of 1.02%/16.7% by FY26E.
Canara Bank has been able to sustain its RoA of ~1% over several quarters, driven by a) stable NIMs by strategically moving away from the older low-yielding corporate books, b) largely stable cost-to-income ratio, and c) continuous moderation of credit costs. On the back of this, we expect CBK's rating to continue going ahead and expect RoA/ROE to reach 1.02%/16.7% by FY26E. We maintain BUY with a revised TP of Rs 600 (valuing the core bank at 1.0x FY26E BVPS).
Emkay Global On Canara Bank:
Factoring in the healthy growth in fees and lower opex, we revise FY25-26E earnings by 6-7% and expect the bank to deliver a healthy 1-1.1% RoA/17-21% RoE over FY25-27E. Given our general positive stance for PSBs and in particular CBK's sustained strong performance, we retain BUY, lifting our TP to Rs650/sh (from Rs550), rolling forward the standalone bank at 1.1x FY26E ABV and subs at Rs30/sh. Key Risks: Slower growth due to macroeconomic challenges and higher-than-expected increase in provisioning due to new IRACP guidelines and the ensuing ECL impact.
Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.
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