Canara Bank’s net profit for Q1’10 surged 352.7% y-o-y to Rs5.6 billion, driven by a 26.7% rise in the net interest income (NII), and a contraction in provisions.
Sequentially, however, the net profit de-grew by 22.7%, largely due to lower revaluation profits. In anticipation of improvement in credit-demand, we have upward revised our estimates for margins, and marginally lowered those for costs.
However, the near-to-medium term deterioration in asset quality weighs down on our valuation.
Our fair value estimate of Rs. 312 indicates limited potential upside from the stock’s current levels. Therefore, we downgrade the stock to HOLD.
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