Rakesh Jhunjhunwala Held This Public Sector Bank Is A Hot Pick On Markets Post Q4 Earnings

Bengaluru-based Canara Bank on Wednesday defied markets bears and traded on the upside as investors thumbs upped this government-owned lender’s earnings for the quarter and year-ended March 31, 2022. The bank witnessed strong growth in bottom-line and top-line front on a year-on-year basis while asset quality improved – growing optimism among investors. LKP Securities has further raised its target price on the bank and assigned a Buy rating.

Ace investor Rakesh Jhunjhunwala will reap the benefits of the upside in Canara Bank going forward as the lender is among the top 10 stocks in his portfolio in value terms.

On Wednesday, Canara Bank shares surged by 1.20% and closed at 202.15 apiece on BSE. The shares were near the day’s high of 203.70 apiece.

On the previous day, the shares closed at 199.75 apiece on the same exchange.

The upside in the shares comes after the bank posted a Q4 net profit of 1,666.22 crore rising by a whopping 64.8% from 1,010.87 crore in the same period last year. Net interest income jumped by 24.85% to 7,005.87 crore against 5,611.12 crore in Q4FY21. Gross NPA improved to 7.51% in Q4FY22 versus 7.80% in Q3FY22 and 8.93% in Q4FY21.

For the full year FY22, net profit climbed to 5,678.42 crore more than doubled from 2,557.58 crore in FY21. Net interest income surged to 26,383.99 crore in FY22 against 24,102.84 crore in FY21.

On the financial performance, Ajit Kumar Kabi, an analyst at LKP Research said, “Canara Bank has been reporting consistent growth in net profit since last eight quarters. A bulky provision ( 54 billion) made in 4QFY20 (two years ago), continued to safeguard the balance sheet with PCR (calculated) of 67% and PCR (including TWO) of 84%. The bank’s margin (2.9% in the 4QFY22) is in upward trajectory with continuous improvement in CD ratio. On the business front, the bank has been reporting stable credit growth (2% sequential jump seen in 4QFY22) across segments.”

On the asset quality, the analysts said, “The absolute GNPA is decreasing gradually with moderate slippages and higher recoveries. In 4QFY22, slippages were expected at 36 billion (v/s 27 billion in 3QFY22) while higher recoveries and upgrades along with robust loan growth aided 29bp/19bp decline in the GNPA/NNPA ratios, respectively. PCR improved 130bps sequentially to 66.5%. The bank carried a provision of 75% on the SREI Infra exposure and guided for NPL reductions to remain higher than slippages in the coming quarters. Total SMA overdue (1/2) is improving and dipped to 0.7% from 1.76% in 3QFY22. Further, the bank’s restructured book (2.3%) is at par with peers.”

Further, he said, “Exposure towards Air India stands at 2 billion that has been fully recovered and the bank has an exposure to Future Group but the management is confident that the exposure would remain standard and is unlikely to slip. Factoring in higher recoveries, we estimate the GNPA/NNPA ratio at 7.3%/2.6% at the end of FY23 with a stable PCR of 67%.”

LKP analyst also pointed out that the bank has raised capital in FY21 which resulted in the CET -1 of 10.3% (at par); Thus we believe the bank may raise capital from stake sales of AMC, HFC and insurance company. He said, “We believe the hurdles from merger (with Syndicate Bank) are behind and the bank shall witness gradual improvement in profitability with FY23E ROA/ROE of 1%/16%.”

Overall, he said, “Factoring near-term capital infusion, we expect the bank’s loan book to fatten carefully at a CAGR of 9.2% over FY21-23E, led by corporate book growth. In our opinion, the bank’s credit cost will normalize further by FY23E and estimate return ratio ROA/ROE of 1% and 16% in FY23E. We value the standalone entity at 0.6xFY23E BVPS ( 433) and arrive at a target price of Rs260. We recommend BUY with a potential upside of 30%.”

LKP Securities analyst has set a buy recommendation with a 12-month target price of 260 apiece.

On BSE, Canara Bank shares have skyrocketed by nearly 35% in one year. On May 11 last year, the shares stood at 150.05 apiece on Dalal Street.

The bull of Dalal Street, Rakesh Jhunjhunwala around 2% in Canara Bank as of March 31, 2022. The investor raised his stake in Canara Bank by 0.36% in Q4FY22 to 35,597,400 equity shares or 1.96%.

As per Trendlyne data, Jhunjhunwala’s holding in Canara Bank as of May 11, 2022, is valued at nearly 720 crore – which is the seventh-largest stock in his account in terms of value. Titan holds the top position with his shareholding amounting to 9,485 crore in this Tata Group company, while Star Health and Metro Brands holds the second and third position with their shareholding valuing 6,910.2 crore and 2,059.1 crore respectively. Shareholding in Tata Motors and Crisil was fourth and fifth highest at 1,523.5 crore 1,277.9 crore respectively. Fortis Healthcare held the sixth spot with a valuation of 773.5 crore.

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