2 PSU Bank Stocks Motilal Oswal Gives A 'Buy' Rating On, Sees Significant Growth Of Nearly 28%

Motilal Oswal gives a buy rating on the stocks of two banks, Canara Bank and Indian Bank. The brokerage firm sees a potential upside of nearly 28 % from both stocks. Both the lenders are public sector banks that were established in the early 1900s, recently they reported a good performance for the March quarter and declared good dividends. Given below are the details for each.

1. Indian Bank
Indian Bank reported a PAT of Rs 14.5 billion (up 47% YoY; 11% miss), supported by healthy NII growth even as provisions stood higher at Rs 26 billion. NII was flat QoQ (up 29% YoY) to Rs 55.1 billion (3% miss) due to 15bp QoQ moderation in margins to 3.59%. For FY23, NII/ PPoP/PAT rose 21%/20%/34% YoY to Rs 202.3 billion, Rs 152.7 billion, and Rs 52.8 billion.

As per Motilal Oswal, Indian Bank asset quality improved, supported by higher reductions despite higher slippages. While the SMA / Restructured book saw moderation, it remains elevated, and thus, we keep a watch on the asset quality. We estimate FY25E RoA/RoE at 1.1%/17.1% and reiterate our Buy rating on the stock with a revised price target of Rs 360 (0.9x Sep'24E ABV).

Dividend details

When the qaurterly results were announced, the directors recommended a dividend of Rs 8.60 per equity Share i.e. 86% of paid up equity capital of the bank for the Financial Year 2022-23. The Record Date for payment of dividend will be Monday, the 12th June, 2023 and the payment of dividend is subject to the approval of Shareholders at the
ensuing Annual General Meeting of the Bank scheduled on 13th June 2023. Also, the book closure is from Tuesday, 13th June, 2023 to Monday, 19th June, 2023 (both days inclusive) in connection with the ensuing Annual General Meeting and Dividend payment.

Share price movement

The latest market price of Indian Bank stock is Rs 296.80 per share, down by 5.91 per cent. The share price has soared by 97.47% in one year, while in three years it has skyrocketed by 530.82%.

2. Canara Bank
Canara Bank reported a mixed quarter with PAT up 91% YoY to Rs 31.7 billion (in-line), driven by higher 'other income' even as NII/PPoP saw a miss. NII grew 23% YoY (8% miss), while margins expanded marginally by 2bp QoQ to 3.07%.

According to the brokerage, Canara Bank's margins stood broadly flat, while asset quality witnessed a steady improvement. Slippages moderated sequentially, enabling further improvement in asset quality ratios. The controlled SMA book, along with the declining restructuring book, provides additional assurance regarding asset quality. We revise our estimates slightly to factor in lower provisions and remain watchful of the provisioning requirement under the IND-AS. We expect the bank to deliver FY25E RoA/RoE of 1.1%/17.8%. We reiterate our BUY rating with an
the unchanged price target of Rs 400 (premised on 0.9x Sep'24E ABV).

Dividend details

The board of directors recommended a dividend of Rs 12 per equity share (120%) for the year ended on March 31, 2023 subject to requisite approvals. The bank has not disclosed the record date or book closure dates yet.

Share price movement

The latest market price of Canara Bank stock is Rs 302.80 per share, down by 3.37% per cent. The share price has surged by 50.31% in one year while in the last three years, it has jumped up high by 272.22%.

Disclaimer:
The stocks have been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.