Indian business magnate and stock trader Rakesh Jhunjhuwala recently added state-run Canara Bank to his portfolio of stocks. With his latest purchase, picking a 1.59% stake in the Public Sector Undertaking (PSU), Jhunjhunwala now has shares of at least three banks, including Federal Bank and Karur Vysya Bank.
Jhunjhunwala's 1.59% shares in Canara Bank is equivalent to 28,850,000 equity shares, and his latest acquisition comes after he made it clear recently that he likes to be bullish towards the banking sector. He had recently said in an interview that banks have the cheapest valuations but they see the biggest upside as far as earnings are concerned.
Recently, Canara Bank announced the completion of Qualified Institutional Placement (QIP) and approved the allotment of 167,392,032 equity shares to institutional buyers at an issue price of Rs 149.35 per equity share, taking its value to Rs 2,500 crore.
The QIP had opened on 17 August and closed on 24 August. As of Tuesday, the shares of Canara Bank were trading at Rs 155.7 per share after seeing a 2% growth due to being high in demand from investors like LIC India, BNP Paribas Arbitrage, Morgan Stanley Asia and Societe Generale. They purchased the shares in Canara Bank through the IPO.
LIC was the largest buyer with 2.66 crore shares or 15.91% of the QIP.
Several stock analysts conclude that Canara bank will heavily benefit from the QIP as the stock operation will raise their capital levels. In a public statement, research firm Emkay Global said, “The CET-1 ratio still remains relatively lower vs. the large peers (9.8% – 11.6%). Thus, we believe that CBK needs to further raise capital either from the market or via a stake sale in subsidiaries.” Emkay Global had given the rating of ‘Buy’ on the Canara Bank stocks along with a target price of Rs 185. This means that they are expecting a profit of at least 19%.
At the target price of Rs 185, Emkay currently values the core bank at 0.6 times for the September 2023 adjusted book value and the value of its subsidiaries is assumed to be at Rs 22 per share. Unlike Emkay Global, JM Financial is not very keen on the shares of Canara Bank and has given a 'hold' rating to the stocks with a target price of Rs 170. Both Kotak and Antique Broking find the stocks worthy with their target price being Rs 150 and Rs 175 respectively.