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Book Profits in Canara Bank

January 3, 2008

ABN Amro in a report released minutes ago has advised to Book Profits in Canara Bank as the bank struggles with lower operating margins than its peers. Poor core fee income and rising loan loss provisions are unlikely to help the bank’s cause.

Can Bank will witness a higher increase than its peers in the average cost of interest-bearing liabilities in FY08 from FY07. The small proportion of low-cost deposits is also a key reason for the relatively high cost of Can Bank funds. We expect low-cost deposit ratios to fall to 30.4% by March 2008 from 31.5% in March 2007.

Can Bank will have the lowest ROAs (average over FY08-10) among its peers at 0.83%. As leverage falls due to expected equity dilution in FY09, we believe ROEs will remain under pressure. We expect Can Bank’s ROEs to average 13.0% over FY08-10, among the lowest in its peer group.

Its weak core earnings do not warrant valuations in line with its peers and that the stock needs to trade at a discount. ABN Amro has downgraded to Sell, from Hold, with a target price of Rs326.1 However, just book profits if you own the stock as we are in a non-stop non-sense Bull Market 🙂

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