Canara Bank - The Smart Investor

Canara Bank | 4QFY2012 Result Update
Exhibit 11: Strong rise in branch network
Exhibit 12: Cost ratios rise sequentially on higher opex
3,650
3,500
3,350
3,200
3,257 3,277
3,437
3,569
3,600
48.0
46.0
44.0
42.0
Cost-to-income ratio (%)
1.5
1.2
Opex to average assets (%, RHS)
2.0
1.4
1.4
1.2
1.5
1.0
3,050
40.0
41.7
45.2
42.5
41.6
46.9
0.5
2,900
4QFY11 1QFY12 2QFY12 3QFY12 4QFY12
38.0
4QFY11 1QFY12 2QFY12 3QFY12 4QFY12
-
Source: Company, Angel Research
Source: Company, Angel Research
Investment concerns
Weak liability franchise likely to keep NIM under pressure
The bank has a relatively weak liability profile with a calculated CASA base at
24.3% as of 4QFY2012. As witnessed in 3QFY2012, overall CASA deposits again
declined by 4.2% yoy in 4QFY2012 as compared to 21.8% yoy growth witnessed
in 4QFY2011. The bank had relatively high proportion of more costly bulk
deposits and CDs at ~43% of deposits in 4QFY2012 as against ~30% in
3QFY2012, which increases the bank’s exposure to interest rate movements. Due
to tight liquidity situation prevalent in 4QFY2012, margins continued to remain
under check. Accordingly, we keep our NIM forecast for FY2013 at 2.2%.
Outlook and valuation
The bank has embarked on a relatively aggressive network expansion plan. Over
the past one year, the bank has added over 323 branches and 642 ATMs. Such a
pace of network expansion should augur well, in our view, for strengthening the
bank’s relatively weak liability franchise.
Though a weakening domestic macro-economic environment and consequently
slower credit growth and ailing asset quality are likely to cap near-term upsides,
cyclically moderate valuations of 0.7x FY2014E ABV vs. five-year average of 1.0x
and range of 0.7-1.4x in our view largely factor in the negatives. Hence,
we recommend Buy on the stock with a target price of `522.
May 10, 2012 6