Shares of Canara Bank hit a three-year high of Rs 297.35 as they gained 2.5 percent on the BSE in intra-day trade on Tuesday. The stock extended its upward move that began with the lender reporting a strong set of numbers for the quarter ended September 2022 (Q2FY23).
Shares of the public sector lender were quoted at their highest level since April 2019. In the past three weeks, Canara Bank’s market price has zoomed 33 percent after it reported an 89 percent jump in net profit to Rs 2,525 crore in Q2FY23, helped by net interest income that higher driven by healthy advance growth.
The bank’s net interest income rose 18.5 percent year-on-year (YoY) to Rs 7,434 crore as against Rs 6,273 crore last year. The bank’s net interest margin (NIM), a measure of profitability, stood at 2.86 percent compared to 2.78 percent in the previous quarter, and 2.77 percent in the year-ago quarter. The bank expects margins to remain healthy given the rising rate environment.
The bank’s asset quality also saw a sharp improvement as gross non-performing assets (GNPA) fell 205 basis points (bps) on a YoY basis, and 61 basis points sequentially to 6.37 percent at the end of the September quarter. The net NPA ratio also increased by 102 basis points YoY, and 29 basis points sequentially to 2.19 percent. The slippage ratio also increased to 0.35 percent in Q2FY23 from 1.04 in the year-ago period.
“Loan growth is led by the corporate segment, and the outlook is encouraging as Canara Bank is looking for good double-digit growth in FY23. Slippage is unchanged sequentially, hence improving asset quality ratios supported by higher recoveries and enhancements. Decline in outstanding SMA Portfolio and restructured provides additional comfort on asset quality trends”, said Motilal Oswal Financial Services in its results update report. It maintains a ‘buy’ rating on the stock, with a target price of Rs 340 per share.
Analysts at Emkay Global Financial Services also maintained their ‘buy’ rating on Canara Bank with a revised target price of Rs 330 per share. The brokerage firm has raised its revenue estimate by 22-27 per cent over FY23-25, taking into account higher credit growth/margins and lower tax rates. “We now expect RoA/RoE to increase to 0.9 per cent/17 per cent by FY25E (without taking into account capital increases),” analysts said in a results update.
Support: Rs 287
Reverse Target: Rs 306; Rs 318
Canara Bank is trading in a slightly overbought zone on the daily chart since last week. Among the key momentum oscillators, the 14-day RSI (Relative Strength Index) is quoted near about the 80 level.
For the stock to remain strong, it needs to sustain above Rs 287 consistently, the weekly chart shows. If the stock fails to do so, the counter may see some profit taking. On the downside, the stock could fall to the Rs 270-odd level.
Meanwhile, given the current positive trend on the counter, the stock may test the Rs 306 – Rs 318 level on the upside, according to the monthly Fibonacci chart.
(With input from Rex Cano)