Canara Bank shares at Rs 400? Jhunjhunwala's biggest banking stock bet can deliver up to 30% return

State-run Canara Bank, a Jhunjhunwala portfolio stock, delivered a mixed set of quarterly results for the March quarter with net interest income (NII) missing analysts estimates on soft loan growth but profit was in line with Street estimates due to higher other income and recovery in two accounts. A couple of brokerages recommended shares price targets of up to Rs 400 on the counter, hinting at up to 30 per cent upside potential.

Motilal Oswal, which has a target of Rs 400 on the stock, said Canara Bank reported a mixed quarter with profit up 91 per cent YoY, in line with estimates, driven by higher other income even as NII and pre-provision operating profit (PPoP) saw a miss.

As per the brokerage, NII growth at 23 per cent YoY was a 8 per cent miss. Loan growth sustained its momentum at 18 per cent YoY, while deposits grew 9 per cent YoY, aided by higher growth in CASA deposits.

"We revise our estimates slightly to factor in lower provisions and expect Canara Bank to deliver FY25E RoA/RoE of 1.1 per cent/17.8 per cent. We reiterate our Buy rating with an unchanged target price of Rs 400," it said.

Kotak Institutional Equities maintained a ‘Buy’ rating on the stock with FV of Rs 370 from Rs 340 earlier. It values the bank at 0.85 times March 2025E adjusted book, with return on equity of 15-18 per cent in the medium term.

"The steady decline in slippages and healthy trend on bad debt recoveries gives us the confidence that the declining credit cost, along with high financial leverage, will continue to support Canara Bank’s return ratios in the medium term. Business momentum seems strong as the bank is delivering healthy mid-teen growth. Operating profitability should hold up well during this period," it said.

Rekha Jhunjhunwala held 37,597,600 shares or 2.07 per cent stake in Canara Bank as of March 31.

JM Financial has a target of Rs 371 on the stock. It cited other income and recoveries in two corporate accounts that lead to healthy PPoP growth. This brokerage said NII came in lower than expectations on account of slower loan growth.

"Deposits saw moderation in growth (8.5 per cent YoY) on account of sluggish growth in TD with CASA at 31.1 per cent. Loan growth remained soft this quarter with slow domestic growth and de-growth in overseas book. NIMs remained stable at 3.07 per cent and are expected to sustain at 3.05 per cent on account of expected repricing of assets," it said.

The brokerage expects Canara Bank's earnings to be driven by healthy loan growth momentum, stability in margins and lower credit costs leading to improvement on return metrics leading to RoA/RoE of 0.96 per cent/18.5 per cent by FY25e.

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