Canara Bank hits 3-yr high; stock zooms 33% in 3 weeks on strong Q2 results

The bank had reported an 89% jump in net profit to Rs 2,525 crore in Q2FY23, aided by higher net interest income that came on the back of a healthy growth in advances

Shares of Canara Bank hit over three-year high of Rs 297.35 as they gained 2.5 per cent on the BSE in Tuesday's intra-day trade. The shares extended their upward movement which started with the lender reporting a strong set of numbers for the quarter ending September 2022 (Q2FY23).

The stock of the public sector lender was quoting at its highest level since April 2019. In the past three weeks, the market price of Canara Bank has zoomed 33 per cent after it reported an 89 per cent jump in net profit to Rs 2,525 crore in Q2FY23, aided by higher net interest income that came on the back of a healthy growth in advances.

The bank's net interest income grew by 18.5 per cent year-on-year (YoY) to Rs 7,434 crore compared to Rs 6,273 crore last year. Net interest margin (NIM), a measure of profitability, of the bank stood at 2.86 per cent compared to 2.78 per cent in the previous quarter, and 2.77 per cent in the year-ago quarter. The bank expects margins to remain healthy given the rising rate environment.

The bank's asset quality also saw sharp improvement as gross non-performing assets (GNPAs) dropped 205 basis points (bps) on a YoY basis, and 61 bps sequentially to 6.37 per cent at the end of the September quarter. Net NPA ratio, too, improved102 bps YoY, and 29 bps sequentially to 2.19 per cent. The slippage ratio also improved to 0.35 per cent in Q2FY23 from 1.04 in the year-ago period.

 "Loan growth was led by the corporate segment, and the outlook is encouraging as Canara Bank is looking for a decent double-digit growth in FY23. Slippages were flat sequentially, thus asset quality ratios improved further underpinned by higher recoveries and upgrades. Decline in SMA overdue and restructured portfolio provides incremental comfort on asset quality trends”, Motilal Oswal Financial Services said in its result 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 retained their 'buy' rating on Canara Bank with a revised target price of Rs 330 per share. The brokerage firm has raised earnings estimates by 22-27 per cent over FY23-25, factoring-in the higher credit growth/margin and lower tax rate. "We now expect RoA/RoE to improve to 0.9 per cent/17 per cent by FY25E (without considering capital raise)," analysts said in result update.

Technical View

Bias: Overbought

Support: Rs 287

Upside Target: Rs 306; Rs 318

Canara Bank is trading in fairly overbought zone on the daily chart since last week. Among the key momentum oscillator, the 14-day RSI (Relative Strength Index) is quoted near about 80-level. 

For the stock to remain buoyant, it needs to hold above Rs 287 on a consistent basis, indicates the weekly chart. In case the stock fails to do so, the counter may witness some profit-taking. On the downside, the stock could fall to Rs 270-odd level. 

Meanwhile, given the current positive trend at the counter, the stock could test Rs 306 - Rs 318 levels on the upside, according to the monthly Fibonacci chart.

(With inputs from Rex Cano)