**[investwise]** Anand Rathi Raises Tgt Price On Canara Bank To Rs 537

 

Raise target price and estimates. We upgrade Canara Bank to Hold from Sell, and raise FY11e and FY12e EPS 13.2% and 10.4% respectively, owing to a healthy 1QFY11 performance. We value the stock at FY12e ABV of 1.3x (FY11 ABV of 1.2x earlier) on account of improved RoE; we raise our target price to Rs537 from Rs379.  Net profit up 82.5%. Robust net interest income growth (33.8% yoy) and lower provisions (34.5% yoy decline) aided net profit growth. Trading gains stood at Rs2.24bn, up 695% yoy. Business growth decent, but limited scope for NIM expansion. Robust growth in credit (23.5% yoy) and deposits (23.3% yoy) was complemented by NIM expansion of 31bp yoy to 3.1%. However, CASA share, at 29% of deposits, is the lowest among peers. As the bank is dependent on wholesale funding, margins can come under pressure in a rising interest rate environment. We see little scope for margin expansion and expect a flat (~2.5%) NIM over FY10-12. Improving coverage and asset quality, but high credit costs. Gross NPAs declined 1.6% qoq, with NPA coverage (including technical write-offs) at 78%. In FY10, investment depreciation write-backs compensated for high NPA provisions. Credit costs of 87bps in FY11 & 76bps in FY12 are likely to limit profitability.  Valuation. At our target price, Canara would trade at FY11e PBV of 1.3x and FY12e BV of 1.1x. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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