Rakesh Jhunjhunwala’s latest stock pick just got a ‘Buy’ call from Emkay Global Financial Services

Emkay Global Financial Services sees over 20% upside in Canara Bank, citing the recent capital raise will shore up its capital ratios which remain subpar compared to peers after the merger with Syndicate Bank. Shares of the public sector lender traded almost flat at Rs 152.85 in the early trade on August 27, Friday. On the other hand, the benchmark BSE Sensex traded 0.09% lower at 55,898. Of late, ace stock picker Rakesh Jhunjhunwala bought a 1.59% stake in public sector lender Canara Bank, BSE data showed on August 24. The latest shareholding data showed that Jhunjhunwala held 2,88,50,000 shares or a 1.59% stake in the state-owned bank. He was not among the key shareholders of the bank for the quarter ended June 30. The country’s biggest institutional investor Life Insurance Corporation of India also increased its holding in the bank to 8.83% from 8.11% earlier. The state-owned lender on Wednesday said it has raised Rs 2,500 crore through the qualified institutional placement (QIP) route. The QIP was fully subscribed and saw a strong response from foreign as well as from domestic qualified institutional buyers (QIBs), the bank said in a statement. "This capital will enable the bank to improve the CET (common equity tier) ratio and in turn, will support further asset growth," the statement said. The issue opened on August 17 and closed on August 23. Emkay Global Financial Services added that Canara Bank had reduced headline non-performing assets (NPA) in Q1 (down 43 basis points QoQ to 8.5%). It has identified NPAs to the tune of Rs 5,150 crore (0.8% of loans) to be transferred to NARCL (National Asset Reconstruction Company). This will further bring down NPAs in Q2/Q3, which could be a near-term positive. "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 to 0.4-0.5%/10-11% by FY23E-24E, led by better growth and moderate LLP. We retain Buy with a traget price of Rs 185," Emkay Global Financial Services said in a report.