Higher business growth; NIM and CASA share dip. Healthy credit and deposits growth yoy (25.5% and 25.3% respectively) was offset by a ~35bps qoq NIM contraction to 2.9%. Although credit-to-deposits is likely to improve from 72.3%, Canara's low CASA share of 28.3% (down 82bps qoq) would limit significant NIM expansion. We lower our FY12e and FY13e NII by 0.5% and 0.6% respectively and estimate FY12-13 NIM at ~2.6%.
n Provisioning for retired employees drags productivity. Core cost-to-income increased 143bps yoy to 42.9% on account of the one-time impact of the retired-employee provision (of `5.2bn). In FY11, the bank has provided for `3.7bn of its estimated pension provision of `23.7bn.
n Asset quality disappoints; slippages high. Gross NPAs rose 12.2% qoq, with NPA coverage falling 292bps qoq to 73%.Slippages, at 3.9% of loans (annualized), were substantially high. While the bank's inconsistent asset quality trend is likely to constrain any significant valuation upside, current valuations (1x FY12 PBV) appear cheap for likely RoE of 22% over FY12-13e.
Key risks: Higher levels of NPA slippages, lower-than-expected NPA recoveries.
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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