UBS bets on this PSU bank for 17% upside citing reasonable valuations, value unlocking

Brokerage firm UBS has initiated coverage on state-run Canara Bank Ltd. with a "buy" recommendation on Wednesday, October 8.

UBS has a price target of ₹150 on the PSU bank, which implies a potential upside of 17% from Tuesday's closing levels.

Canara Bank, according to UBS, is well placed to deliver steady loan growth, aided by easing sector headwinds, higher liquidity and a lower loan-to-deposit ratio (LDR).

"While near-term margins could remain under pressure due to declining interest rates, we expect gradual improvement over financial year 2027-2028 to be led by repricing of deposits and a higher mix of Marginal Cost of Fund Based Lending (MCLR) loans," UBS wrote in its note.

The brokerage also expects Canara Bank's credit costs to remain under control due to a lower mix of unsecured retail loans and as a result, the lender's Return on Assets (RoA) is likely to remain at 1% over financial year 2026 to 2028, while its Return on Equity (RoE) to remain at 16% during the same time frame.

At 0.9 times one-year forward price-to-book value, Canara Bank's current valuations remain reasonable given the steady growth and earnings.

The listing of its subsidiaries will also add to Canara Bank's price target going forward, UBS wrote. Two of Canara Bank's units, Canara Robeco AMC and Canara HSBC Life Insurance will both list next week. Canara Robeco's IPO opens for subscription on Thursday, while that of the life insurance unit opens on Friday.

Lower growth and higher credit costs are some of the concerns that UBS has highlighted for Canara Bank.

Out of the 21 analysts that have coverage on Canara Bank, 15 of them have a "buy" rating, four say "hold" and two have a "sell" rating.

Shares of Canara Bank ended 1.4% higher on Tuesday at ₹128.4. The stock has risen 28% already in 2025 so far. The stock is the second-best performer on the Nifty PSU Bank index for 2025, following Indian Bank's 43% surge.