Brokerage Kotak Institutional Equities added Canara Bank to its midcap model portfolio as it remains positive on Indian banks and does not see any negative impact on them from the deteriorating financial condition of several mid-sized banks in Europe and the US.
The brokerage firm has a target price of Rs 365 on the PSU lender, which indicates an upside potential of 33% from the current market price of Rs 275 per share.
At 11.47 am, shares of Canara Bank were trading 2.1% lower at Rs 275.7 over its last day’s closing price of Rs 281 on BSE. On a year-to-date basis, the stock has fallen 18%, while it has surged 23% in the last one year.
At 11.47 am, shares of Canara Bank were trading 2.1% lower at Rs 275.7 over its last day’s closing price of Rs 281 on BSE. On a year-to-date basis, the stock has fallen 18%, while it has surged 23% in the last one year.
Apart from Canara Bank, the brokerage firm added Devyani International to its midcap portfolio, while it has removed Crompton Greaves Consumer and LIC Housing Finance.
Both Canara Bank and LIC Housing Finance trade at similar valuations (0.8X 12-month forward BV), but we prefer Canara Bank, given its superior asset and liability profile, Kotak said.
“Devyani has declined 20% CYTD23 on concerns about a near-term slowdown in QSR demand. We do not rule out earnings downgrades in the case of Devyani, but we like the long-term potential of the QSR business in India, and do not see a slowdown in revenues/volumes for a few quarters as materially relevant for its valuations,” Kotak added.
Meanwhile, the brokerage firm in its large-cap model portfolio increased weight on Axis Bank (70bps to 7.5%), SBI (30 bps to 6.5%), Power Grid (40 bps to 2.5%), and RIL (100 bps to 9.8%), while it removed Hindalco (140 bps from the portfolio) and reduced weight on L&T by 100 bps to 400 bps.
“We see banks as one of the few sectors in India, which offer reasonable visibility in earnings, and potential for rerating of multiples,” the brokerage said.
Valuations of most banks and NBFCs are well below their pre-COVID levels, whereas their fundamentals are much stronger in terms of the composition of loan book with a significantly higher share of retail loans in overall loans, quality of loan book with high PCR and low unrecognized stress assets, and composition of deposits with a higher share of CASA in overall deposits, it said.
“Axis Bank trades at 1.9X 12-month forward BV and will deliver RoAE of 16-18% in FY2025 on our estimates. SBI trades at 1X 12-month forward BV adjusted for the value of its holdings in its associates and subsidiaries and will deliver RoAE of 14-15% over FY2024-25 on our estimates,” Kotak said.
Source: Navdeep Singh, ETMarkets.com