Stocks To Buy: 3 Banking Stocks With An Upside Target Of Up to 30%

Markets may have a volatile session next week, as investors will digest the RBI MPC meet. Banking stocks are expected to see movement based on the decision of the Monetary Policy Committee of the RBI. Here are a few banking stocks that brokerage house Prabhudas Lilladhar and Emkay Global Financials are betting on.

Buy Canara Bank, says broking firm Emkay Global

Broking firm, Emkay Global has suggested buying the stock of Canara Bank with an upside target of almost 30% from the current levels. The broking firm has revised the price target to Rs 185, as against the current market price of Rs 148. 

According to the brokerage despite moderate credit growth and elevated provisions, Canara Bank reported a strong beat on net profits at Rs 11.7 billion, driven by strong margins, a one-off gain from the UB group stake sale and higher PSLC fees (seen across PSBs). Reported Gross Non Performing Assets improved 43 basis points, qoq to 8.5% due to contained slippages/higher upgrades.

"In our view, merger/asset quality related concerns are largely behind and the bank should report a gradual improvement in its RoA/RoE to 0.4-0.5%/10-11% by FY23E-24E (without factoring in dilution). Retain Buy with a revised target price of Rs 185 (from Rs 175), factoring in upgrades in earnings/multiple (core bank now valued at 0.6x vs. 0.5x)," the broking firm has said.

Buy ICICI Bank, Says Prabhudas Lilladhar

The brokerage has set a target of Rs 815 on the stock of ICICI Bank, as against the current market price of Rs 677.

According to Prabhudas Lilladhar, ICICI Bank operationally reported in-line performance with net profits of Rs 46.2 billion with a strong Net Interest Income growth of 18% YoY (best in industry) followed through a strong core PPOP growth of 23% YoY. The small setback was on higher slippages of Rs 72.3 billion (annualized 4% of loans) given the severity of wave two of covid 19.

"Strong franchise strength is reflecting in strong growth path both in liabilities & assets with much better managed risk which keep Return On Equity to move towards 15-16% in FY23. Maintain conviction BUY with revised target price of Rs 815 (from Rs 750) based on 2.4 times Sep-23 anticipated book value (rolled from March 2023) and subs value of Rs 181 (from Rs 164)," the brokerage has said. Shares of ICICI Bank were last seen trading at Rs 682.

Buy IndusInd Bank

Prabhudas Lilladhar has also suggested buying the stock of another banking major, IndusInd Bank. The bank saw savings account deposit strong with Rs 88.6 billion of incremental accretion, highest in the first quarter. IndusInd Bank's earnings of Rs 9.75 billion (PLe: Rs 9.97 billion) was largely in-line with Net Interest Income growth of 8% YoY in line with loan growth, better fees & and a relatively elevated but flat provisions.

"Strong PCR of +70% and 100bps of COVID related provision cushions balance sheet impact and bank has managed the pandemic quite well. We retain BUY with revised price of Rs 1,280 (from 1,195) based on 1.7 times Sep-23 ABV (rolled from Mar-23)," the brokerage has said.

According to Prabhudas Lilladhar, the bank has built in segmental granularity in retail-corporate with slower growth and selling down exposures. Granularizing book has been completed and has started seeing strong growth in certain segments like large corporate & commercial banking. Retail disbursements were down 25-35% in Q1FY22 quarter on intermittent lockdown and are improving in Q2FY22. On deposits side, Current and Savings Account grew by 33% YoY/5% QoQ with ratio at 42% and further aspiring to improve towards 45%.

Shares of IndusInd were last seen trading at Rs 981.

Disclaimer

Investing in stocks poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage houses are not liable for any losses caused as a result of decisions based on the article. Investors should take care because the markets are near record highs.