PSU Bank's First Ever Stock Split Coming Up: Buy 118-Year Old Canara Bank's Share For Rs 660-680 TP

Canara Bank, one of the oldest public sector banks of India, will be in focus in the trading week from February 26th to March 1st. The PSU bank is planning to announce its first ever stock split ratio on February 26. That being said, brokerage Way2Wealth has recommended buy on Canara Bank for target prices ranging from Rs 660-680.

In its latest research note, Way2Wealth said, "It has various near term key developments like stock-split, fund raising and a possible inclusion in Bank NIFTY index. Multiple levers are in place for the bank to positively impact its price performance. Thus, we remain positive on the stock and arrive at target price of Rs 670, implying 0.96x FY26e P/BV. Hence we recommend to BUY at the current valuation."

Way2Wealth recommends buying range in Canara Bank to be Rs 550 - 570 for target price of Rs 660 - 680.

On BSE, Canara Bank share price ended at Rs 580 apiece, down by 0.40% with market cap of over Rs 1.05 lakh crore,

Canara Bank's monthly upside is nearly 28%, while its six-month's gains is by whopping 78%. In a year, the stock emerges as a multibagger with nearly 114% upside.

After Q3 earnings, the next focus in Canara Bank is its stock splits announcement. In its regulatory filing, Canara Bank said, a meeting of the Board of Directors of the Bank is scheduled to be held on Monday, 26th February 2024, to seek in-principle approval from the Board of Directors for Sub-Division/Split of the Equity Shares of the Bank subject to prior approval of Reserve Bank of India (RBI) and other Statutory/Regulatory/Government of India approvals, as may be required.

As per Way2Wealth, the following are key reasons to why invest in Canara Bank's share:

- It is the fifth largest bank in the Indian banking industry based on loan book size and third largest in PSU basket. Under PSU bank consolidation scheme, CANBK combined with Syndicate Bank.

- Gross advances grew 10% YoY CAGR over period of FY20-23 to ₹8,628bn, with share of RAM segment rising from 52% in FY20 to 55% in FY23.

- Total deposits witnessed 9% CAGR growth over FY20-23 to ₹11,792bn with CASA ratio remaining stable at 33%. Savings deposit consists of 87% share in CASA and grew at 8% CAGR over the FY20-23 to ₹3,188bn.

- Rising share of RAM segment leading to expansion of yield on advances to Pre-CoVID levels. Yield on advances are 48bps up at 7.7% in FY23 from CoVID lows of 7.2%. High interest rates have led to ~40bps increase cost of funds during FY23. NIMs were at 3% by end-FY23 and remains on the upper end of management guided 2.9% - 3.0% range.

- Asset quality improving as GNPA fell ~400bps to 5.4% in past three years while NNPA was down ~260bps to 1.7% over the same period. Improving asset quality also leading to lower credit cost, with ~166bps fall over FY20-23 period.

- With significant improvement in operating performance, CANBK's return ratios have expanded with RoE turning positive from -15.5% in FY20 to 19.5% in FY23. Return on Asset also rose notably from -0.6% in FY20 to 0.8% in FY23.

- The board has already approved fund raising via AT1 and AT3 bonds to the extent of ₹75bn, comprising of ₹35bn of AT1 bonds and ₹40bn of AT2 bonds. Management is keenly keeping watch on interest rate scenario and whenever market situation is favorable, decision on raising residual ₹61bn of funds would be taken.

- Driven by strong credit demand in India, it is likely to see healthy loan book growth momentum to continue with agriculture and retail segment especially housing finance and vehicle loans to drive this growth.

- This shift in RAM mix, would certainly lift the yield on advances profile. Anticipation of interest rate cut in 2HFY24, would drive down the elevated cost of funds, leading to notable NIM expansion.

- Results of initiatives taken to improve asset quality are visible with significant fall in GNPA and NNPA to 4.4% and 1.3% respectively. Healthy recoveries and falling fresh slippages may drive further fall in NPA levels going forward.

In Q3FY24, net profit came in at Rs 3,656 crore, versus Rs 2882 crore in the same quarter a year ago. Global Business stood at Rs 22,13,360 Cr, grew by 9.87%. While Net Interest Income stood at Rs 9,417 crore, grew by 9.50%. Notably, Net Interest Margin stood at 3.02% improved by 9 bps. Gross NPA Ratio stood at 4.39%, down by 150 bps as of December 31, 2023.

Founded in July 1906, Canara Bank has been scaling up its market position to emerge as a major Financial Conglomerate with as many as thirteen subsidiaries/sponsored institutions in India and abroad. As of December 31, 2023, the Bank has 9585 Number of Branches, out of which 3095 are Rural,2742 Semi Urban,1906 Urban & 1842 Metro along with 10463 ATMs. Bank is also having 3 Overseas Branches in London, New York & Dubai.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor 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.