21 January 2017

3QFY17 Results Update | Sector: Financials

Canara Bank
BSE SENSEX S&P CNX
27,035 8,349
CMP: INR273 TP: INR300 (10%) Neutral
Bloomberg CBK IN Net slippages stable QoQ; NIMs impacted by one off
Equity Shares (m) 543.0  Canara Bank (CBK) earnings (INR3.2b; 2.8x on a low base) missed our estimates
M.Cap.(INRb)/(USDb) 148.0/2.2
by ~22% due to a) one off interest reversal of INR2b for S4A and SDR accounts
52-Week Range (INR) 339 / 156
1, 6, 12 Rel. Per (%) -9/16/46 and b) lower than expected non-core income (INR11b vs INR9.8b a quarter
Avg Val, INRm 1033 ago). Loans were flat YoY as infra loans (15% of loans) de-grew 20% YoY;
Free float (%) 33.7 however retail loans grew 13% YoY
 Net slippages were flat QoQ at INR18.7b (2.3% of loans, annualized).
Financials & Valuations (INR b) Management expects resolution in one-two large accounts in the ensuing
Y/E March 2016 2017E 2018E
quarters and sharp moderation in slippages in 4Q. Net stressed loans declined
NII 97.6 99.4 107.2
OP 71.5 82.3 92.8 30bp QoQ to 10.5%. OSRL ratio fell 40bp QoQ to 3.6%.
NP -28.1 13.0 19.9  Helped by demonetization, CASA deposits growth was strong at 30% YoY (+17%
EPS (INR) -51.8 23.9 36.7 QoQ). SA deposits grew 19% QoQ and 34% YoY growth. Reported CASA ratio
EPS Gr. (%) NM NM 53.2 improved to 32% vs 29% a quarter ago.
BV/Sh. (INR) 477 496 524
 Other highlights: (a) Fees ex forex grew 4% YoY for 3Q however, in 9M growth
RoE (%) -10.8 4.9 7.2
RoA (%) -0.5 0.2 0.3
was strong at 16% YoY (b) During the quarter bank raised INR10b of AT1 bond
P/E (x) -5.3 11.4 7.4 leading to raise in AT1 ratio to 90bp and T1 ratio to 9% (c) CET1 ratio is 8.1%
P/BV (x) 0.57 0.55 0.52 and CBK board has already passed resolution to raise INR11.3b of equity via
rights issue (INR7.5b to GOI and INR3.8b from Public).
Valuation and view: Net stress addition has been coming down over past two
quarters, which is a positive, and management expects this trend to continue.
However, given weak operating environment, we would wait and watch
developments in asset quality. Furthermore, given the bulky nature of CBK’s
balance sheet, it is highly levered to a fall in interest rate. Our SOTP based target
price is INR300 (0.4x Dec 2018 BV+INR67 for other investments). Maintain Neutral.

Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526

Sohail Halai (Sohail.Halai@MotilalOswal.com); +91 22 6129 1544
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Canara Bank

Exhibit 1: Quarterly performance vs expectation (INR B)

Y/E March 3QFY17A 3QFY17E Var. (%) Comments
Net Interest Income 24,138 23,925 1
NII in line; Although Adjusted NII beat our estimates by 8%
% Change (YoY) 8 7
Other Income 17,917 20,455 -12 Trading gains lower than expected
Net Income 42,055 44,380 -5
Operating Expenses 22,242 22,481 -1 Opex in line
Operating Profit 19,813 21,899 -10
% Change (YoY) 28 41
Other Provisions 14,846 15,825 -6 INR1.3b of Punjab FCI exposure provision reversal
Profit before Tax 4,968 6,074 -18
Tax Provisions 1,749 1,944 -10
Net Profit 3,219 4,130 -22 Core PPoP largely inline; Lower than expected non core
% Change (YoY) 279 386 income drags profitability
Source: MOSL, Company

Other highlights
 INR2b of interest reversals for S4A and SDR guideline. Adjusted for which NII
grew 17% YOY and beat our estimates by 8%.
 Reported NIMs were stable QoQ at 2.19%. While cost of funds declined 36bp
(calculated on cumulative reporting), yield on loans and investments declined
25p and 60bp respectively.
 Almost 40% of the term deposits (26-28% of the overall deposits) are corporate
deposits for the bank and in easy liquidity situation it is positive for margins.
 Loans were flat YoY led by de-growth in infrastructure (-20% YoY; partially led by
conversion of SEB loans into bonds); overall retail loans grew by 13% YoY with
housing loans growth of 15% YoY.
 CBK raised INR10b of AT1 at 8.6% during the quarter and has approval in place
to raise INR15b further. CBK also has board approval in place to raise INR11.3b
via rights issue of INR7.5b is expected to come from GOI and rest is expected
come from other shareholders.

21 January 2017 2
 Canara Bank

3QFY17 conference call highlights

Balance Sheet Related
 Focus on the growth is returning back; Targeting 7-8% loan growth for FY17 vs
YTD and YOY being flat
 Targeting a 64-65% retail, SME and agriculture portfolio mix in the overall loan
book (as this offers better yields as well as lower delinquencies).
 Not accepting DRI corporate deposits. Focus remains on retail term deposits.
Share of retail TD in overall TD has increased to 62% vs 51% a year ago
 In the corporate lending segment, the bank feels it has become much more
competitive with MCLR, allowing the company to get access to higher quality
corporates.

P/L Related
 The bank has booked only 40% of the available trading gains in the quarter and
expects to book to rest in 4Q.
 The bank has board approval to dilute 13% stake in CANFIN homes. This is
expected to provide INR5-6b capital gains in our view.
 The bank also has board approval to sell of CANARA FACTORS business.
 CBK is targeting 2.5% exit margins for FY18

Asset Quality
 Total outstanding S4A stands at INR25b, no new addition in the quarter and has
the pipeline of iNR25b
 5:25 total pool stands at INR63b which are largely standard (some are included
standard restructured loans)
 INR75b is the pool of SDR accounts and INR8b of which are recognized as stress
loans. Of rest some are in standard restructured loans
 Targeting to improve PCR to 55% by end of FY17
 Expects 1-2 large corporate accounts resolution to take place by end of FY17
leading to upgrade of INR10-15b
 Expects slippages of less than INR15b during 4QFY17
 SMA2 accounts remain in the range of INR170-180b
 Bank has taken benefit of RBI dispensation of 90dpd for small value accounts of
less than INR10m – Amounting to INR5.6b

Valuation and view

 Over last six years, CBK’s profitability has declined significantly led by
Maintain Neutral rating
compression in core revenues and higher provisioning costs. However, over the
with target price of INR349
last 2-3 quarters the bank has displayed better/stable trend in net stress
addition. Improvement in economic environment remains the key.
 Sensitivity of earnings to risk-adjusted NIMs has increased significantly. With
every (1) 10bp NIM expansion, earnings could see an upgrade of ~20%, and (2)
10bp decline in credit cost, earnings could see an upside of ~15%.
 RBI has allowed various tools apart from normal restructuring (5:25, SDR, S4A,
sale to ARC-leading to security receipts etc.) to tackle the stress loans. Hence,
actual overall stress loans have been significantly higher than reported NNPAs.

21 January 2017 3
 Canara Bank

 Difference between reported BV and ABV (NNPA at 70%) is high at ~40%.Until

the improvement in economic growth and resolution of key sectors problems
(Infra and Iron and Steel) comes through markets would focus on adjusted P/BV.
 We have cut estimates by ~12% for FY17 and largely maintain for FY18/19. Our
4QFY17 estimates don’t factor in chunky upgrades and stake sale in CANFIN.
 Despite attractive valuations, given challenging operating environment, we
would wait and watch developments on asset quality. Our SOTP based TP is
INR300. Maintain Neutral.
Exhibit 2: Our STOP is INR300
Stake Value per share % of Total Rationale
Banking Business (A) 233 78 0.4x December 2018 BV; Based on RI
Total Value of Key ventures 83 28
Canfin Homes 43 36 12 Latest MCAP
Canara HSBC 51 38 13 Based on peer valuation
Canara Robecco 51 3 1 Valued at 4% of AUM
CARE 9 7 2 Latest MCAP
Less: Holdco discount 17 6
Value of Key Ventures (B) 67 22
SOTP (A+B) 300 100
CMP 273
Upside 10
Source: MOSL, Company

Exhibit 3: Largely maintain estimates for FY18/19

Old Est Revised Est Change (%)
INR b
FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19
Net Interest Income 96.6 102.3 120.1 99.4 107.2 122.7 3.0 4.7 2.2
Other Income 75.3 86.3 97.3 71.2 81.0 91.6 -5.5 -6.1 -5.9
Total Income 171.9 188.6 217.4 170.6 188.2 214.3 -0.7 -0.2 -1.4
Operating Expenses 84.8 92.5 101.5 88.3 95.4 103.0 4.1 3.2 1.4
Operating Profits 87.1 96.1 115.8 82.3 92.8 111.3 -5.5 -3.5 -3.9
Provisions 65.0 65.4 68.5 62.6 62.6 65.2 -3.7 -4.3 -4.7
PBT 22.0 30.7 47.4 19.7 30.2 46.0 -10.7 -1.8 -2.8
Tax 7.3 10.1 15.6 6.7 10.3 15.7 -8.0 1.2 0.2
PAT 14.8 20.6 31.7 13.0 19.9 30.4 -12.0 -3.2 -4.2
Loans 3,377 3,884 4,466 3,410 3,819 4,391 1.0 -1.7 -1.7
Deposits 5,230 5,857 6,677 5,158 5,880 6,821 -1.4 0.4 2.1
Margins (%) 1.85 1.80 1.88 1.90 1.86 1.87
Credit Cost (%) 1.93 1.65 1.50 1.85 1.65 1.50
RoA (%) 0.26 0.32 0.45 0.23 0.31 0.42
RoE (%) 5.6 7.4 10.6 4.9 7.2 10.3
Source: MOSL, Company

21 January 2017 4
 Canara Bank

Exhibit 4: Expect return ratios to improve gradually (%)

Y/E MARCH FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Net Interest Income 2.04 2.36 2.35 2.56 2.17 2.00 1.98 1.86 1.77 1.73 1.69 1.70
Fee income 0.81 0.63 0.56 0.55 0.51 0.44 0.48 0.43 0.47 0.53 0.56 0.56
Fee to core Income (%) 28.4 21.1 19.4 17.5 19.0 17.8 19.6 18.8 21.1 23.3 24.8 24.9
Core Income 2.85 2.99 2.91 3.11 2.67 2.44 2.46 2.29 2.25 2.26 2.25 2.26
Operating Expenses 1.61 1.53 1.44 1.47 1.32 1.31 1.34 1.40 1.36 1.54 1.51 1.42
Cost to Core Income 56.5 51.3 49.4 47.3 49.2 53.6 54.7 61.0 60.6 68.1 66.9 63.1
Employee cost 0.96 0.94 0.91 0.98 0.84 0.83 0.81 0.82 0.81 0.90 0.87 0.81
Other operating expenses 0.65 0.59 0.53 0.49 0.48 0.48 0.53 0.57 0.55 0.64 0.63 0.61
Core operating Profits 1.24 1.46 1.47 1.64 1.36 1.13 1.11 0.89 0.89 0.72 0.74 0.83
Trading and others 0.47 0.53 0.62 0.39 0.32 0.37 0.39 0.44 0.41 0.71 0.72 0.70
Operating Profits 1.71 1.98 2.09 2.03 1.67 1.50 1.50 1.34 1.30 1.43 1.46 1.54
Provisions 0.61 0.70 0.51 0.35 0.52 0.56 0.83 0.66 1.88 1.09 0.99 0.90
NPA provisions 0.51 0.45 0.59 0.33 0.36 0.47 0.47 0.73 1.75 1.07 0.94 0.85
Other Provisions 0.10 0.25 -0.08 0.02 0.16 0.09 0.35 -0.06 0.13 0.02 0.05 0.05
PBT 1.10 1.29 1.58 1.67 1.15 0.93 0.68 0.67 -0.58 0.34 0.48 0.64
Tax 0.20 0.25 0.33 0.33 0.23 0.20 0.14 0.15 -0.07 0.12 0.16 0.22
Tax Rate 17.8 19.4 20.9 19.9 19.6 21.8 20.4 22.7 11.7 34.0 34.0 34.0
RoA 0.90 1.04 1.25 1.34 0.92 0.73 0.54 0.52 -0.51 0.23 0.31 0.42
Leverage (x) 21.1 21.9 21.5 19.7 18.5 18.2 19.4 20.7 21.1 21.7 22.9 24.4
RoE 19.1 22.7 26.8 26.4 17.1 13.3 10.5 10.8 -10.8 4.9 7.2 10.3
Company, MOSL

21 January 2017 5
 0
2.8 9MFY13 2.2 9MFY13 2,182
9MFY13 2.4

4
2.6 FY13 2.4 FY13 2,422
FY13 2.2

11
2.9 1QFY14 2.2 1QFY14 2,499

21 January 2017
1QFY14
2.5 1HFY14 2,811
1HFY14 2.6 1HFY14 2.2
2.8
2.3
9MFY14 2.2 9MFY14 2,877
9MFY14

Gross NPA (%)

75bp QoQ to 35.1%
2.4

30 32 24
FY14 2.5 FY14 2.3 FY14 3,011
2.0

21
1QFY15 3,030
Story in charts

1QFY15 2.7 1QFY15 2.3

2.0
1HFY15 2.9 1HFY15 2.2 1HFY15 3,109
2.3
Loans (INR b)

9MFY15 3.4 9MFY15 2.2 9MFY15 3,123

2.4
FY15 3.9 FY15 2.3 FY15 3,300

Net NPA (%)

2.7
11 9 10 7

1QFY16 4.0 1QFY16 2.2 1QFY16 3,241

2.7
4

1HFY16 4.3 1HFY16 2.2 1HFY16 3,231

2.9
6

9MFY16 5.8 9MFY16 2.2 9MFY16 3,319

3.9
YoY gr. (%)

FY16 9.4 FY16 2.2 FY16 3,247

6.4
1QFY17 9.7 1QFY17 3,213
6.7 1QFY17 2.2
Exhibit 5: Loan growth continues to remain muted (%)

1HFY17 9.8 1HFY17 3,271

QoQ however, adjusted one off it would have +4bp QoQ

6.7 1HFY17 2.2
9MFY17 3,316
(2) (1) 1 (0)

9MFY17 10.0
6.7 9MFY17 2.2
Exhibit 7: Reported global NIMs (cumulative basis) stable

Source: Company, MOSL

Exhibit 9: Absolute GNPA up 3% QoQ; PCR (cal.) improved
Source: Company, MOSL
Source: Company, MOSL
8

3QFY13 1.1 9MFY13

3QFY13 2.4 6.1
8

4QFY13 0.6 FY13

4QFY13 2.2 6.6
1QFY14 0.7 1QFY14
1QFY14 2.5 6.9
2QFY14 0.5 1HFY14
2QFY14 2.3 6.4
13 14 16

3QFY14 0.8 9MFY14

3QFY14 2.4 6.4
20

4QFY14 2.0 6.7 4QFY14 1.1 FY14

1QFY15 2.0 6.9 1QFY15 1.5 1QFY15

2QFY15 2.3 6.6 2QFY15 1.2 1HFY15

NNPA (%)
CASA Ratio (calc,%)

3QFY15 2.4 6.6 3QFY15 1.2 9MFY15

4QFY15 2.7 6.9 4QFY15 1.0 FY15
1QFY16 2.7 7.1 1QFY16 1.6 1QFY16

OSRL (%)
2QFY16 1.2 1HFY16
Exhibit 8: Credit costs remain elevated (%)

2QFY16 2.9 7.1

3QFY16 3.9 6.2 3QFY16 1.7 9MFY16
11 9 11 10 12 12 12 9

4QFY16 6.4 4.0 4QFY16 7.2 FY16

Exhibit 10: NSL decreased ~40bp QoQ to 10.3% (%)

17

1QFY17 6.7 4.2 1QFY17 1.8 1QFY17

CASA YoY gr. (%)
Exhibit 6: Strong CASA GR. (+30% YoY) led by demon.

14

2QFY17 6.7 4.0 2QFY17 1.9 1HFY17

30

25 24 23 24 23 25 23 23 23 24 23 24 24 26 28 27 30

3QFY17 6.7 3.6 3QFY17 1.8 9MFY17

6
Source: Company, MOSL
Source: Company, MOSL
Source: Company, MOSL
Canara Bank
 Canara Bank

Exhibit 11: Quarterly snapshot

FY15 FY16 FY17 Variation (%)
INR m 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 2Q QoQ YoY
Profit and Loss
Net Interest Income 24,293 23,678 23,805 24,861 25,165 26,465 22,266 23,738 23,074 24,424 24,138 -1 8
Other Income 10,269 10,213 11,762 13,258 11,130 12,105 11,686 13,832 15,847 17,818 17,917 1 53
Trading profits 909 1,440 3,010 5,090 1,980 2,950 1,610 3,360 6,070 5,030 7,470 49 364
Forex Income 2,630 2,060 2,510 610 1,020 1,650 2,090 1,930 2,760 3,170 2,640 -17 26
Recoveries 1,180 900 930 800 2,100 1,610 1,410 960 500 1,610 910 -43 -35
Core Fees 5,550 5,813 5,312 6,758 6,030 5,895 6,576 7,582 6,517 8,008 6,897 -14 5
Total Income 34,562 33,891 35,567 38,120 36,295 38,570 33,952 37,570 38,921 42,241 42,055 0 24
Operating Expenses 16,612 17,636 17,594 20,794 16,259 19,129 18,427 21,104 20,732 20,834 22,242 7 21
Employee 10,381 10,358 10,379 11,625 10,588 11,078 10,398 12,395 12,082 12,169 13,057 7 26
Others 6,231 7,278 7,215 9,169 5,672 8,050 8,030 8,709 8,650 8,664 9,184 6 14
Operating Profits 17,950 16,255 17,973 17,325 20,036 19,441 15,524 16,466 18,189 21,408 19,813 -7 28
Provisions 7,881 8,137 8,413 10,096 13,597 12,123 14,289 63,315 14,929 15,857 14,846 -6 4
NPA provisions 11,250 9,120 9,520 7,820 13,140 9,790 14,320 58,830 14,690 15,580 14,870 -5 4
Provisions on Invst. -4,160 -220 -2,360 160 1,330 640 1,550 -850 170 150 150 0 -90
Others 791 -763 1,253 2,116 -873 1,693 -1,582 5,335 69 127 -174 -237 -89
PBT 10,069 8,118 9,560 7,230 6,438 7,318 1,236 -46,850 3,260 5,550 4,968 -10 302
Taxes 2,000 1,850 3,000 1,100 1,650 2,029 386 -7,795 970 1,981 1,749 -12 353
PAT 8,069 6,268 6,560 6,130 4,788 5,289 850 -39,055 2,290 3,569 3,219 -10 279
Asset Quality
GNPA 81,595 91,643 105,736 130,400 130,806 140,213 198,134 316,378 323,341 333,154 343,387 3 73
NNPA 61,501 71,703 75,559 87,401 88,881 93,825 129,401 208,329 214,939 218,871 222,958 2 72
GNPA (%) 2.7 2.9 3.4 3.9 4.0 4.3 5.8 9.4 9.7 9.8 10.0 16 413
NNPA (%) 2.0 2.3 2.4 2.7 2.7 2.9 3.9 6.4 6.7 6.7 6.7 3 282
PCR (Calculated, %) 24.6 21.8 28.5 33.0 32.1 33.1 34.7 34.2 33.5 34.3 35.1 77 38
PCR (Reported, %) 60.1 58.7 59.4 57.3 59.0 59.8 54.0 50.1 50.8 51.8 52.5 77 -144
Slippages 25,950 31,780 22,920 28,050 25,190 22,010 54,020 146,020 38,780 24,490 22,250 -9 -59
Slippage Ratio (%) 4.2 4.5 3.2 3.7 3.3 2.8 6.9 17.7 4.8 3.0 2.7 -35 -424
Credit Cost (%) 1.5 1.2 1.2 1.0 1.6 1.2 1.7 7.2 1.8 1.9 1.8 -12 6
Restructured loans* 209,010 203,920 206,750 226,210 230,370 228,910 206,080 130,633 133,801 131,470 120,001 -9 -42
% to Loans 6.9 6.6 6.6 6.9 7.1 7.1 6.2 4.0 4.2 4.0 3.6 -40 -259
Ratios (%)
Fees to Total Income 16.1 17.2 14.9 17.7 16.6 15.3 19.4 20.2 16.7 19.0 16.4
Cost to Core Income 55.7 59.8 60.4 65.8 52.1 59.1 63.9 67.4 70.1 64.2 71.7
Tax Rate 19.9 22.8 31.4 15.2 25.6 27.7 31.2 16.6 29.8 35.7 35.2
CASA (cal) 22.9 22.6 22.7 24.0 23.2 23.9 24.1 25.7 27.6 27.2 30.1
Loan/Deposit 70.6 67.4 67.5 69.7 68.7 66.6 67.7 67.7 69.0 67.5 65.0
CAR 10.2 10.2 9.9 10.6 10.8 11.0 11.5 11.1 12.1 12.2 12.3
Tier I 7.4 7.4 7.2 8.0 8.3 8.6 8.7 8.8 8.8 8.9 9.0
Margins - Cumulative (%)
Yield on loans 10.7 10.7 10.8 10.8 10.2 10.2 9.9 9.7 9.2 9.2 9.1 -6 -83
Yield On Investments 8.1 8.0 8.0 8.0 8.0 8.0 7.9 7.9 7.9 7.9 7.8 -6 -11
Cost of Deposits 7.4 7.4 7.4 7.4 7.1 7.1 7.0 6.9 6.5 6.4 6.3 -7 -70
Margins 2.3 2.2 2.2 2.3 2.2 2.2 2.2 2.2 2.2 2.2 2.2 0 3
Balance sheet (INR b)
Loans 3,030 3,109 3,123 3,300 3,241 3,231 3,319 3,247 3,213 3,271 3,316 1 0
Retail Loans 362 389 402 423 420 445 484 541 562 545 550 1 13
Deposits 4,290 4,612 4,624 4,738 4,719 4,852 4,906 4,798 4,653 4,843 5,103 5 4
CASA Deposits 983 1,040 1,050 1,135 1,097 1,160 1,181 1,235 1,283 1,317 1,537 17 30
Savings Deposits 816 863 863 937 921 967 989 1,037 1,078 1,111 1,321 19 34
Current Deposits 167 177 187 198 175 193 192 198 204 207 216 5 12
Source: MOSL, Company

21 January 2017 7
 Canara Bank

Exhibit 12: Valuation metrics

Rating CMP Mcap EPS (INR) P/E (x) BV (INR) P/BV (x) RoA (%) RoE (%)
66
(INR) (USDb) FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18
ICICIBC* Buy 279 24.5 17.3 20.0 12.7 10.0 145 160 1.45 1.26 1.13 1.18 10.5 11.2
HDFCB Buy 1,240 47.5 58.5 70.3 21.2 17.6 332 386 3.73 3.21 1.92 1.94 18.9 19.6
AXSB Neutral 487 17.6 13.4 23.7 36.2 20.5 230 250 2.11 1.95 0.56 0.84 6.0 9.9
KMB* Buy 811 22.5 26.7 33.1 30.4 24.5 208 239 3.91 3.39 1.63 1.81 14.2 15.4
YES Buy 1,289 8.2 77.4 100.0 16.6 12.9 389 469 3.31 2.75 1.77 1.84 21.6 23.3
IIB Buy 1,203 10.8 48.4 60.9 24.9 19.7 333 385 3.62 3.12 1.83 1.85 15.5 17.0
FB Buy 82 2.1 4.6 5.6 17.8 14.7 51 55 1.62 1.49 0.79 0.80 9.4 10.6
DCBB Neutral 128 0.6 7.2 8.7 17.9 14.7 69 77 1.86 1.65 0.95 0.93 11.0 11.9
JKBK Neutral 67 0.5 -1.8 5.6 -37.6 12.0 130 136 0.52 0.49 -0.10 0.28 -1.4 4.2
SIB Buy 24 0.5 3.0 3.6 8.1 6.6 30 33 0.81 0.74 0.59 0.62 10.3 11.7
Private Aggregate 134.9 23.1 18.3 2.78 2.48
SBIN (cons)* Buy 259 30.5 14.7 24.3 17.6 10.7 234 253 1.22 1.11 0.47 0.54 7.9 9.5
PNB Neutral 144 4.3 10.8 12.8 13.3 11.2 189 200 0.76 0.72 0.31 0.34 5.8 6.6
BOI Neutral 114 1.6 -10.8 21.6 -10.6 5.3 239 255 0.48 0.45 -0.16 0.29 -4.6 8.7
BOB Buy 155 5.4 14.1 20.0 11.0 7.8 157 173 0.99 0.90 0.47 0.60 9.3 12.1
CBK Neutral 314 2.6 28.3 37.5 11.1 8.4 500 528 0.63 0.59 0.27 0.32 5.8 7.3
UNBK Buy 145 1.5 22.4 39.1 6.5 3.7 314 348 0.46 0.41 0.37 0.58 7.4 11.8
OBC Neutral 130 0.7 16.7 24.2 7.8 5.4 410 428 0.32 0.30 0.23 0.30 4.2 5.8
INBK Buy 224 1.6 25.3 31.4 8.9 7.1 300 324 0.75 0.69 0.57 0.64 8.7 10.0
ANDB Buy 56 1.8 1.5 6.4 36.9 8.8 109 114 0.52 0.50 0.08 0.31 1.4 5.8
Public Aggregate 50.0 15.8 10.3 0.80 0.75
Banks Aggregate 184.9 20.5 15.1 1.66 1.53
HDFC* Buy 1,336 32.0 34.5 37.8 26.6 20.9 194 217 4.08 3.20 1.84 1.82 19.4 19.0
LICHF Buy 586 4.5 39.9 49.6 14.7 11.8 213 253 2.75 2.32 1.51 1.55 20.3 21.3
IHFL Buy 854 5.5 68.1 83.7 12.5 10.2 280 315 3.05 2.71 3.63 3.65 25.5 28.1
GRHF Neutral 329 1.8 8.0 10.1 41.1 32.6 28 35 11.67 9.47 2.25 2.26 31.3 32.1
REPCO Buy 764 0.7 30.4 39.7 25.1 19.3 180 215 4.25 3.56 2.15 2.20 18.3 20.1
DEWH Buy 319 1.4 31.4 38.8 10.2 8.2 202 231 1.58 1.38 1.27 1.31 17.0 17.9
Housing Finance 45.9 21.7 18.3 4.35 3.84
RECL Neutral 134 4.0 29.4 33.4 4.6 4.0 168 194 0.80 0.69 2.63 2.54 18.8 18.5
POWF Neutral 125 5.0 24.0 25.5 5.2 4.9 149 167 0.84 0.75 2.37 2.12 16.8 16.2
Infra Finance 9.0 4.9 4.5 0.82 0.73
SHTF Buy 1,128 3.9 66.9 90.2 16.9 12.5 502 573 2.25 1.97 2.30 2.65 14.1 16.7
MMFS Buy 363 3.1 14.3 17.4 25.5 20.9 118 131 3.08 2.78 1.97 2.10 12.6 14.0
BAF Buy 1,150 1.9 34.6 44.2 33.2 26.0 166 204 6.91 5.64 3.48 3.38 22.8 23.9
MUTH Buy 363 2.2 28.0 33.6 13.0 10.8 159 180 2.29 2.01 3.66 3.57 18.7 19.9
Asset Finance 12.9 14.3 11.6 2.33 2.07
NBFC Aggregate 67.8 14.0 12.0 2.51 2.22
Financials 252.7 18.2 14.1 1.83 1.67
UR=Under Review*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in
subsidiaries

21 January 2017 8
 Canara Bank

Financials and Valuations

Income Statement (INR Million)
Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E
Interest Income 308,506 340,779 395,476 437,500 440,221 416,111 443,498 504,995
Interest Expense 231,613 261,989 306,034 340,864 342,588 316,705 336,327 382,328
Net Interest Income 76,893 78,790 89,442 96,637 97,634 99,406 107,171 122,667
Change (%) -0.1 2.5 13.5 8.0 1.0 1.8 7.8 14.5
Non Interest Income 29,276 31,530 39,328 45,503 48,752 71,193 81,014 91,584
Net Income 106,169 110,320 128,770 142,139 146,386 170,598 188,185 214,251
Change (%) 1.0 3.9 16.7 10.4 3.0 16.5 10.3 13.9
Operating Expenses 46,737 51,420 60,810 72,636 74,919 88,312 95,397 102,988
Pre Provision Profits 59,432 58,900 67,960 69,504 71,467 82,286 92,788 111,264
Change (%) -2.4 -0.9 15.4 2.3 2.8 15.1 12.8 19.9
Provisions (excl tax) 18,605 22,179 37,330 34,527 103,324 62,599 62,619 65,217
PBT 40,827 36,721 30,630 34,976 -31,858 19,687 30,169 46,047
Tax 8,000 8,000 6,250 7,950 -3,730 6,693 10,258 15,656
Tax Rate (%) 19.6 21.8 20.4 22.7 11.7 34.0 34.0 34.0
PAT 32,827 28,721 24,380 27,026 -28,128 12,993 19,912 30,391
Change (%) -18.5 -12.5 -15.1 10.9 -204.1 -146.2 53.2 52.6
Equity Dividend (Incl tax) - - - - - - - -
Core PPP* 32,827 28,721 24,380 27,026 -28,128 12,993 19,912 30,391
Change (%) -18.5 -12.5 -15.1 10.9 -204.1 -146.2 53.2 52.6
*Core PPP is (NII+Fee income-Opex)

Balance Sheet (INR Million)

Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E
Equity Share Capital 4,430 4,430 4,613 4,752 5,430 5,430 5,430 5,430
Reserves & Surplus 222,470 244,348 291,589 313,840 310,602 321,259 336,919 360,617
Net Worth 226,900 248,778 296,201 318,592 316,032 326,689 342,349 366,047
Deposits 3,270,537 3,558,560 4,207,228 4,738,401 4,797,916 5,157,759 5,879,846 6,820,621
Change (%) 11.5 8.8 18.2 12.6 1.3 7.5 14.0 16.0
of which CASA Dep 796,107 860,613 1,032,794 1,135,322 1,235,422 1,493,336 1,717,336 1,974,937
Change (%) -4.2 8.1 20.0 9.9 8.8 20.9 15.0 15.0
Borrowings 155,254 202,834 272,306 256,716 268,733 290,188 306,061 323,521
Other Liabilities & Prov. 88,911 113,255 143,483 166,297 146,927 173,161 198,701 228,481
Total Liabilities 3,741,602 4,123,426 4,919,219 5,480,006 5,529,608 5,947,797 6,726,957 7,738,670
Current Assets 281,794 347,147 448,287 486,411 567,337 582,499 676,659 799,345
Investments 1,020,574 1,211,328 1,268,283 1,420,614 1,423,093 1,636,557 1,882,040 2,164,347
Change (%) 22.0 18.7 4.7 12.0 0.2 15.0 15.0 15.0
Loans 2,324,898 2,421,766 3,010,675 3,300,355 3,247,148 3,409,506 3,818,646 4,391,443
Change (%) 10.0 4.2 24.3 9.6 -1.6 5.0 12.0 15.0
Fixed Assets 28,575 28,627 66,416 69,494 71,981 72,781 73,582 74,382
Other Assets 85,760 114,557 125,558 203,131 220,049 246,455 276,029 309,153
Total Assets 3,741,602 4,123,426 4,919,219 5,480,006 5,529,608 5,947,797 6,726,957 7,738,670

Asset Quality (%)

GNPA (INR M) 40,318 62,602 75,702 130,399 316,380 352,981 360,861 357,652
NNPA (INR M) 33,862 52,780 59,654 87,862 208,928 222,956 206,203 176,418
GNPA Ratio 1.73 2.58 2.50 3.90 9.43 9.97 9.08 7.82
NNPA Ratio 1.46 2.18 1.98 2.66 6.43 6.54 5.40 4.02
PCR (Excl Tech. write off) 16.0 15.7 21.2 32.6 34.0 36.8 42.9 50.7
PCR (Incl Tech. Write off) 67.6 61.4 60.1 57.3 50.1 53.1 58.8 65.7
E: MOSL Estimates

21 January 2017 9
 Canara Bank

Financials and Valuations

Ratios
Y/E March 2012 2013 2014 2015 2016 2017E 2018E 2019E
Spreads Analysis (%)
Avg. Yield-Earning Assets 9.5 9.4 9.5 9.2 8.8 8.0 7.7 7.7
Avg. Yield on loans 10.6 10.3 10.5 10.2 9.6 9.0 8.7 8.7
Avg. Yield on Investments 7.6 8.2 8.3 7.9 8.0 7.0 6.6 6.6
Avg. Cost-Int. Bear. Liab. 7.1 7.3 7.4 7.2 6.8 6.0 5.8 5.7
Avg. Cost of Deposits 7.1 7.4 7.4 7.2 6.8 6.0 5.7 5.6
Interest Spread 2.4 2.1 2.1 2.0 2.0 1.9 1.9 1.9
Net Interest Margin 2.4 2.2 2.1 2.0 1.9 1.9 1.9 1.9

Profitability Ratios (%)

RoE 17.1 13.3 10.5 10.8 -10.8 4.9 7.2 10.3
RoA 0.9 0.73 0.54 0.52 -0.51 0.2 0.3 0.4
Int. Expense/Int.Income 75.1 76.9 77.4 77.9 77.8 76.1 75.8 75.7
Fee Income/Net Income 15.4 16.3 13.3 15.3 15.3 15.3 16.1 16.5
Non Int. Inc./Net Income 27.6 28.6 30.5 32.0 33.3 41.7 43.0 42.7

Efficiency Ratios (%)

Cost/Income* 45.4 49.7 49.8 55.6 54.9 60.6 59.7 56.7
Empl. Cost/Op. Exps. 63.6 63.3 60.4 58.8 59.3 58.6 57.9 57.1
Busi. per Empl. (INR m) 125.9 135.6 136.1 141.3 144.7 141.0 146.8 159.5
NP per Empl. (INR lac) 7.8 6.7 5.0 5.0 -5.1 2.2 3.2 4.6
* ex treasury
Asset-Liability Profile (%)
Loans/Deposit Ratio 71.1 68.1 71.6 69.7 67.7 66.1 64.9 64.4
CASA Ratio 24.3 24.2 24.5 24.0 25.7 29.0 29.2 29.0
Investment/Deposit Ratio 31.2 34.0 30.1 30.0 29.7 31.7 32.0 31.7
G-Sec/Investment Ratio 87.0 84.2 84.8 88.4 89.2 94.5 93.7 94.5
CAR 13.8 12.4 10.6 10.2 11.1 10.4 9.5 8.8
Tier 1 10.4 9.8 7.7 7.6 8.8 8.4 7.8 7.3

Valuation
Book Value (INR) 463.8 513.4 518.1 552.5 477.2 496.1 524.2 567.2
Change (%) 14.6 10.7 0.9 6.6 -13.6 4.0 5.7 8.2
Price-BV (x) 0.6 0.5 0.5 0.5 0.6 0.5 0.5 0.5
Adjusted BV (INR) 414.1 436.0 434.1 432.4 227.1 229.2 277.4 356.0
Price-ABV (x) 0.7 0.6 0.6 0.6 1.2 1.2 1.0 0.8
EPS (INR) 74.1 64.8 52.9 56.9 -51.8 23.9 36.7 56.0
Change (%) -18.5 -12.5 -18.5 7.6 -191.1 -146.2 53.2 52.6
Price-Earnings (x) 3.7 4.2 5.2 4.8 -5.3 11.4 7.4 4.9
Dividend Per Share (INR) 11.0 13.0 11.0 10.5 0.0 4.3 7.3 11.2
Dividend Yield (%) 4.0 4.8 4.0 3.9 0.0 1.6 2.7 4.1
E: MOSL Estimates

21 January 2017 10
 Canara Bank

Corporate profile
Exhibit 1: Sensex rebased
Company description
Set up in 1906, Canara Bank (CBK) it one of the oldest
banks in the India. The government nationalized the
bank in 1969. Over the years bank has made several
acquisitions, major one being Lakshmi Commercial
Bank which gave significant presence in northern
India. As of September 2016, the bank had a network
of 5,868 branches and 10,026 ATMs spread across
India. The bank also has several overseas branches
and subsidiaries / joint ventures (Can Fin Homes
Limited, Canara Robeco AMC, Canara HSBC Oriental
Life Insurance Company amongst others).
Source: MOSL/Bloomberg

Exhibit 2: Shareholding pattern (%) Exhibit 3: Top holders

Dec-16 Sep-16 Dec-15 Holder Name % Holding
Promoter 66.3 66.3 66.3 LIC OF INDIA 13.7
DII 20.5 20.2 19.8 HDFC TRUSTEE COMPANY LIMITED 4.5
FII 5.9 6.4 7.0 RELIANCE CAPITAL TRUSTEE CO LTD 1.2
Others 7.3 7.1 6.9
Note: FII Includes depository receipts Source: Capitaline
Source: Capitaline

Exhibit 4: Top management Exhibit 5: Directors

Name Designation Name Name
Thothala Narayanasamy G V Manimaran Sanjay Jain
Chairman (Non-Executive)
Manoharan
Sairam Mocherla Sunil Hukumchand Kocheta
Rakesh Sharma Managing Director & CEO
Rajinder Kumar Goel Pankaj Jain
Dina Bandhu Mohapatra Executive Director
Uma Shankar
Harideesh Kumar B Executive Director
Pradyuman Singh Rawat Executive Director
B Nagesh Babu Company Secretary

*Independent
Source: Capitaline

Exhibit 6: Auditors Exhibit 7: MOSL forecast v/s consensus

Name Type EPS MOSL Consensus Variation
(INR) forecast forecast (%)
J L Sengupta & Co Statutory
FY17 23.9 20.8 14.9
J Singh & Associates Statutory
FY18 36.7 41.8 -12.2
Ram Raj & Co Statutory
S C Vasudeva & Co Statutory
Source: Bloomberg
V K Niranjan & Co Statutory
Source: Capitaline

21 January 2017 11
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