Why Canara Bank shares tumbled 4% despite 90% growth in Q4 profit?
Shares of Canara Bank dropped nearly 4% in intraday trade on Tuesday, in an otherwise positive broader market, even after the state-owned lender reported healthy growth in its bottom line as well as improvement in asset quality during the January-March quarter of 2023. The banking stock has been under stress for the last three sessions and tumbled as much as 7% during the same period as investors resorted to profit booking ahead of its fourth quarter earnings report.
Early today, Canara Bank shares opened 1.3% higher at ₹317.45 against the previous closing price of ₹313.35 on the BSE. Paring opening gains, the largecap stock declined 3.7% to hit an intraday low of ₹301.85 on the bank of surge in selling activities. As many as 11.5 lakh shares changed hands over the counter on the BSE against the two-week average volume of 3.24 lakh stocks, while the market capitalisation slipped to ₹56,355 crore.
The banking heavyweight has witnessed a strong rally in the last one year, outperforming the S&P Bankex index and BSE benchmark Sensex. Canara Bank shares delivered 54% returns to its shareholders in the last 12 months as compared to 25% growth in the Bankex index and 14% rise in the Sensex.
However, the PSU bank stock has lost momentum in the calender year 2023, with the share price falling 8% during this period. In comparison, the Bankex index and the Sensex rose 0.5% and 1.5%, respectively, in CY23.
At the current price level, the share price of Canara Bank trades nearly 12% lower than its 52-week high of ₹341.60 touched on January 3, 2023. The counter has risen 76% against its 52-week low of ₹171.70 hit on June 20, 2022. The stock has gained 10% in a month, while it slipped nearly 3% in a week.
For Q4FY23, Canara Bank reported 90% growth in net profit at ₹3,175 crore compared with ₹1,666 crore a year ago, aided by higher income and lower provisions. The net interest income (NII), the difference between interest earned and interest expended, rose 23% year-on-year (YoY) to ₹8,616 crore.
On the asset quality front, gross non-performing assets (NPA) declined 17% YoY to ₹46,159.5 crore, while net NPA fell 23.15% YoY to ₹14,349.33 crore in Q4 FY23. The gross NPA ratio improved to 5.35% in Q4FY23 from 7.51% in the year-ago, and net NPA too dropped to 1.73% from 2.65% in Q4 FY22.
The board of directors has recommended a dividend of ₹12 per equity share (120%) for the year, subject to requisite approvals. Considering the bank’s performance, the board of the bank permitted to pay 15 days salary as performance linked incentive (PLI) to the employees.
According to analysts at JM Financial, Canara Bank reported a healthy Pre-provision operating profit (PPOP) growth amounting to ₹7,300 crore (17% YoY, 4% QoQ), aided by one-offs in other income with recoveries in two corporate accounts amounting to ₹600-650 crore. The NII was lower than expectations on account of slower loan growth, it said.
“We expect CBK’s earnings to be driven by a) healthy loan growth momentum, b) stability in margins and c) lower credit costs leading to improvement on return metrics leading to RoA/RoE of 0.96%/18.5% by FY25e,” the bank said in its report.
The brokerage has maintained “BUY” rating with a revised target price of ₹371 from ₹355 earlier.
LKP Securities have also recommended “BUY” with a price target of ₹349, implying a potential upside of 20% from Monday’s closing price, citing continued momentum in earnings and business as well as improvement in credit quality. “We believe the bank is growing the balance sheet with well-adjusted margins and it is expected to bode well in near term. Moreover, the CET – 1 (11.45%) has improved with AT-1 bond issues. We believe the hurdles are long behind us and the bank shall witness gradual improvement in profitability with FY24E ROA/ ROE of 1%/17%,” it said in a report.
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