Canara Bank stock performance to rise as marquee investors Rakesh Jhunjhunwala, Morgan Stanley and LIC invest in it
- Canara Bank has raised ₹2,500 crore through qualified institutions placement (QIP), earlier this week.
- LIC, BNP Paribas, Morgan Stanley, and Rakesh Jhunjhunwala have bought stakes in the company through QIP.
- Analysts believe the fundraise will help the lender focus on gradual improvement in its returns on equities.
AdvertisementState-run Canara Bank has raised ₹2,500 crore through qualified institutions placement (QIP) this week. The ₹1,000 crore profit-making bank’s fundraise will help the lender focus on gradual improvement in its returns on equities, say analysts.
“We believe that merger-related concerns are largely behind and the bank should report a gradual improvement in its return on assets/return on equity,” said a report by Emkay Global.
Syndicate Bank was merged into Canara Bank in April 2020. The merger was in line with the government plan to amalgamate 10 public lenders into four megabanks to strengthen their market position.
Analysts at Emkay Global believe the stock will rally 19% in the next 12 months as it maintains a ‘buy’ rating on the lender’s stock.
Marquee investors like Morgan Stanley, BNP Paribas, Life Insurance Corporation (LIC), Volrado Venture Partners have bought stakes in the company through QIP. QIP is a fundraising tool wherein accredited investors can invest in the company.
|Key investors in QIP||% of total issue size|
|ICICI Prudential Life Insurance||6.37%|
|Volrado Venture Partners||6.05%|
|Other investors (lower than 5% of issue)||38.60%|
Ace investor Rakesh Jhunjhunwala also bought a 1.59% stake or 2.88 crore shares in the bank. Reportedly, Rakesh Jhunjhunwala now owns shares of at least three bank stocks, including Federal Bank and Karur Vysya Bank.
Besides, the fact that the company is making profits comfortably with lower levels of non-performing assets (NPAs) may also have lured investors. The lender reported a nearly three-fold jump in its net profit to ₹1,177 crore in June quarter from ₹406 crore last year helped by a dip in the provision for bad loans.
|Total income (in ₹ crore)||21,210.06||21,522.60||21,479.86|
|Net profit (in ₹ crore)||1,177.47||1,010.87||696.06|
|% of net NPA||3.46%||3.82%||2.64%|
|Provisions for NPA||2334.88||4427.53||2657.64|
“After the first round of capital raise in December 2020 (₹2000 crore at ₹109 per share), the bank raised ₹2500 crore this week via the second tranche of QIP at a better price of ₹149.3 per share. We believe that the capital raise will mainly shore up its capital ratios, which remain subpar compared to peers after the merger with Syndicate Bank,” said the report by Emkay Global.
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