Motilal Oswal Bets On 2 Mid Cap PSU Bank Stocks, Sees Potential Upside Upto 26% From Current Level

Leading brokerage firm Motilal Oswal has recommended "buy" stocks of Union Bank of India & Canara Bank. Both are mid-cap PSU Banks with a market cap of more than 50,000 crores. The brokerage sees a potential upside of up to 26% in the stock. Check the key takeaways of the report below:

2. Union Bank Of India

Motilal Oswal has given a buy call to the stock with a target price of Rs 65 per share. According to the given target price, the stock is likely to be given a return of 26%.

Union Bank Of India's stock last traded at Rs 51.65 per share on NSE. Its 52 week high is Rs 54.80 and its 52 week low is Rs 33.50, respectively. It has a market cap of Rs 35,301.47 crore.

The stock surged 12.4% in a week, whereas, in a month it surged 16.99%. It has given a positive return of 36.1% in 3 months. It has given 6.94% in the past 1 year. The stock has given 3.37% negative return in the past 3 years, a massive 70.7% negative return in the past 5 years, respectively.

Union Bank Of India - Margin expands by 15bp QoQ to 3.15%; PCR inches up marginally to 71%

According to the brokerage, Union Bank Of India reported a 21% YoY growth in PAT at INR18.5b in 2QFY23 (10% beat) driven by higher NII and other income. While provisions remain elevated, the impact was partially offset by tax reversals. In 1HFY23, Union Bank Of India reported a 26% YoY growth in PAT at INR34b. NII grew 10% QoQ and 22% YoY to INR83.1b in 2QFY23, led by a combination of robust loan growth of 7.6% QoQ and a 15bp expansion in NIM to 3.15%. In 1HFY23, NII grew 15% YoY to INR158.9b. Other income fell 18% YoY, but grew 16% QoQ, led by higher recoveries from written-off accounts and treasury income. This was 15% higher than our estimates. Operating expenses grew 6% YoY to INR50b. The C/I ratio moderated by 60bp YoY to 43.2% in 2QFY23. PPOP/core PPOP grew 8%/19% YoY to INR65.8b/INR62.8b. In 1HFY23, PPOP grew 7% YoY to INR120b. The bank saw an impressive loan growth of 7.6% QoQ and 25% YoY to INR7.3t, led by robust traction across all segments. Corporate/Overseas loans grew 8%/13% QoQ. The RAM segment grew 5.4% QoQ. The management aims to further scale this segment, with a share of 55% in the business mix. Deposits grew 5.1% QoQ and 14% YoY. CASA ratio moderated 56bp QoQ to 35.6%.

Union Bank Of India - Valuation and brokerage's view

Union Bank Of India reported a healthy 2QFY23, with the earnings beat driven by healthy NII and other income and tax reversals, though provisioning remained elevated. Fresh slippages significantly moderated on a sequential basis. This, coupled with a low SMA book (0.57%) and controlled restructuring (2.6%), provides a better outlook on asset quality. Loan growth has picked up and was aided by all segments: Corporate, Agri, Retail, and MSME. "We revise our FY23 PAT estimate by 14%, the same for FY24 remains largely flattish. This is driven by higher NII and other income and lower tax expense, offset by elevated provisioning. We estimate a RoA/RoE at 0.8%/13.9% by FY24. We maintain our Buy rating, with a Target Price of INR65 (0.6x FY24E ABV)," the brokerage has said.

2. Canara Bank

Motilal Oswal has assigned a "buy" rating to Canara Bank, with a target price of Rs 340 per share. The stock is expected to rise 20% from its current level, based on the brokerage's target price. 

The stock last traded at Rs 284.20 per share on NSE. The stock's 52 week low is Rs 171.75 and the 52 week high is Rs 288, respectively. It has a market cap of Rs 51,557.58 crore.

The stock in the past 1 week surged 13.57%. It has given 24.05% in 1 month, whereas, in the past 3 months, it has given 26.42% positive returns. It has given positive returns of 40.73% in 1 year, and 47.485 in 3 years, whereas, in the past 5 years, it has given a negative return of 35.39%.

Canara Bank - Margin expands 8bp QoQ to 2.86%; PCR improves to 67%

According to the brokerage, Canara Bank posted a PAT of INR25.3b (+90% YoY; significant beat) led by strong other income and beat in NII, which grew 19% YoY (3% beat) due to healthy loan growth and 8bp QoQ expansion in margin to 2.86%. For 1HFY22, NII/PPoP/PAT grew 14%/22%/81% YoY to INR142.2b/INR135.1b/ INR45.5b, respectively. Other income rose 13% YoY due to healthy performance in treasury, continued traction in fee income and higher recoveries from written-off accounts. Total revenue thus increased 16% YoY (5% beat). Operating expenses jumped 8% YoY, led by rise in other expenses as employee cost was stable. PPoP thus grew 23% YoY to INR69.1b (7% beat). On the business front, total loan grew 6% QoQ with strong momentum in Corporate and Agri segment that improved 6% QoQ while Retail/SME grew 4%/3% sequentially. Deposits saw weaker trend with 10% YoY/1% QoQ growth. CASA deposits stood flat QoQ while CASA ratio was at 34% (-30bp QoQ). Fresh slippages were stable at INR39.5b while higher recoveries, upgrades and write-offs aided 61bp/29bp decline in the GNPA/NNPA ratios to 6.37%/2.19%, respectively. PCR improved to 67% in 2QFY23. Further, SMA overdue book declined to 0.96% from 1.29% in 1QFY23, while restructured portfolio declined 30bp to ~2.1% of loans.

Canara Bank - Valuation and brokerage's view

Canara Bank reported a healthy operating performance supported by continued traction in loan growth and improvement in asset quality while expansion in margins drove NII. The bank expects margins to remain healthy given the rising rate environment. Loan growth was led by the corporate segment and the outlook is encouraging as Canara Bank is looking for a decent double-digit growth in FY23E. Slippages were flat sequentially, thus asset quality ratios improved further underpinned by higher recoveries and upgrades. Decline in SMA overdue and restructured portfolio provides incremental comfort on asset quality trends. "We increase our PAT estimates by 17%/19% for FY23/24, respectively, to account for higher NII, other income, loan growth and lower tax rate. We estimate an RoA/RoE of 1.0%/16.2% by FY24E. Maintain BUY with a revised Target Price of INR340 (premised on 0.8x FY24E ABV)," the brokerage has said.

Disclaimer

The stocks have been picked from the brokerage reports of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.