News from Emkay Global Financial Services is that it is “bearish on Canara Bank (CBK).” In a research report from May 5 of this year, it has “recommended reduce rating on the stock with a target of Rs 560.” Apparently, CBK’s profits were lower than anticipated, probably due to a decrease in NIM’s which dropped to 2.8 percent.
There has been a drop in Q4FY11 in CBK’s NII by 7 percent qoq. Yet at the same time, there has been an escalation of 11 percent in advances. CBK is shocked at the bank’s reporting of only 10bps qoq reduction in NIMs given the “sharp drop in NII.” One possible explanation for this is that the company may have moved some of the investments in liquid mutual funds at this time.
Recoveries Assist CBK
There have been some significant recoveries that have assisted CBK. For example, the Rs 3.3bn and Rs 1.7bn income have led to CBK being able to “offset Rs 5.5bn of pension provisions on retired employees during the quarter.”
There have also been increased “slippages” of up to Rs 18.4bn for QrY11 which was much higher than the Rs 16.6bn figure “cumulative for M9FY11. This substantial increase was probably due to the “shift to the system based recognition of NPAs for accounts with more than Rs 1 million of outstanding.” As well, the PCR dropped by 300bps to 73 percent.
Further, CBK increased Rs 20bn in Q4Y11 through a QIP that enabled it to easily put “its tier I CAR at 10.9 percent.” According to Emkay’s Global Financial Services research report, “we maintain our reduce rating with target price of Rs 560.”
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