Canara Bank: Don’t underestimate the power PSU

                                                                                                                             

Posted on twitter on 22nd Feb 2021

Canara Bank: Don’t underestimate the power PSU

Market Cap-26,300 cr

CMP- 160

Industry- Banks/Financials

Business Overview Most of the PSU banks seem to be on the cusp of turnaround after years of rigorous overhaul of processes, systems and practices in place. Canara Bank looks promising among the pack. In FY21, the bank bounced back into black and showing strong sings of turnaround in asset quality and profitable growth. The banking space has unexpectedly absorbed the systemic shocks that have come post COVID19.

Turnaround on Cards Strong improvement in Asset Quality cycle coupled with lower interest rates, economic recovery and expected credit growth.

Key Triggers Massive infra push by GOI that might fuel the GDP, employment in the country, strong determination by the government to change the perception of PSU companies via key announcements like privatization, bank consolidations in few big banks

Cyclical Tailwinds Cost of funds down from 5.5% FY19 to 4.2% which will help NIMs grow in the future, NIMs have increased to 2.8% from 2.5%

Asset Quality

Valuations Canara Bank at book value of 310 FY21, looks very attractive at P/BV 0.53x. Historically the P/BV of Canara Bank is at cyclical lows of 0.35-.055x. Sectoral tailwinds, economic recovery & strong intent by Government of India to create stakeholder value should add great value to Canara Bank.

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