Emkay Global Financial Maintains Buy Rating on Canara Bank, Targets Rs 160

Canara Bank Continues Strong Credit Growth, Despite Weak Treasury Performance

Canara Bank (CBK) has reported a strong credit growth of 16% year-over-year (YoY), significantly outpacing its guidance, a trend observed across Public Sector Banks (PSBs). This marks a turnaround from the bank's 10-quarter decline in credit growth. Notably, the bank's margins have shown a positive surprise, increasing by 9 basis points (bps) quarter-over-quarter (QoQ), primarily due to a decrease in Cost of Funds (CoF). However, the bank's treasury performance was weak, resulting in a 14% miss on earnings, with Profit After Tax (PAT) at Rs45 billion.

Guidance for FY27 and Focus on Margin Protection

For the fiscal year 2027 (FY27), the management has guided for conservative credit growth, ranging between 11-12%. Despite this cautious outlook, the bank expects to surpass its guidance, similar to the previous fiscal year (FY26). In light of rising cost pressures, the bank will focus on protecting its margins. The bank has estimated an Expected Credit Loss (ECL) impact of Rs100 billion (0.8% of loans), which appears manageable, given its healthy Common Equity Tier 1 (CET 1) ratio of 12.4%.

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Earnings Estimates and Outlook

We have largely retained our earnings estimates for Canara Bank, expecting the bank to deliver a return on assets (RoA) of 1% over FY27-28E, followed by a moderation to 0.9% in FY29E.

Recommendation and Target Price

We maintain our BUY recommendation for Canara Bank, while trimming our target price by approximately 6% to Rs160 from Rs170. This valuation reflects the standalone bank at 1x FY28E Asset-Based Value (ABV) and subsidiaries/investments at Rs11/share.

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