Why Rakesh Jhunjhunwala’s entry failed to trigger a rally in Canara Bank shares

An updated shareholding pattern by the PSU bank post-QIP suggests Rakesh Jhunjhunwala has entered the stock with a 1.59 per cent stake. But the Rs 149.35 a piece price at which the bank sold 16,73,92,032 shares to QIP investors was lower than the prevailing stock price. The scrip factored in the same on Wednesday, falling 2.7 per cent to Rs 151.40.

Besides, while the QIP would shore up the core capital level, the bank would need more to support growth.

“We believe that the capital raise will mainly shore up its capital ratios, which remain sub-par compared to peers after the merger with Syndicate Bank,” it said, adding that “the CET-1 ratio still remains relatively lower compared with large peers (9.8- 11.6 per cent) and Canara Bank needs to further raise capital either from the market or via a stake sale in subsidiaries (Life Insurance/CanFin homes),” it said.

The brokerage said the fresh QIP will improve CET-1 by 48 basis points to 9.3 per cent from 8.9 per cent in the June quarter. It will increase Tier-1 capital to 10.8 per cent from 10.3 per cent in the June quarter and overall capital adequacy ratio (CAR) to 13.8 per cent from 13.4 per cent.

Analysts said Canara Bank has cut NPAs by 43 basis points sequentially to 8.5 per cent and has identified Rs 5,150 crore of NPAs to be transferred to NARCL, which should further bring down NPAs in September and December quarter. The bank has also shored up the specific provision cover to 61 per cent, which otherwise has been an irritant, they said.

“We believe that merger-related concerns are largely behind and the bank should report a gradual improvement in its RoA to 0.4-0.5 per cent and RoE to 10-11 per cent by FY23-24, led by better growth and moderation in loan loss provision,” Emkay said while suggesting a target of Rs 185 for the stock. At this price, Emkay values the core bank at 0.6 times September 2023 adjusted book value and its subsidiaries at Rs 22 per share.

JM Financial has a ‘hold’ rating on the stock with a target price of Rs 170. Kotak finds the stock worthy of Rs 150 while Antique Stock Broking sees it at Rs 175.

Other than Canara Bank, Jhunjhunwala also owns 4.5 per cent stake in Karur Vysya Bank and 2.8 per cent stake in Federal Bank.