Jhunjhunwala portfolio stock: Canara Bank shares rise as board approves 13% stake dilution in MF arm

Shares of Canara Bank Ltd rose more than 1.5 per cent during the trading session on Monday after the state-run lender informed the stock exchanges regarding in principle approval to initiate the process of listing its mutual fund subsidiary Canara Robeco Asset Management Company Ltd, by way of initial public offer (IPO).

"We wish to inform that Canara Bank has accorded approval for initiating the process for diluting 13 per cent stake of the bank by listing of Canara Robeco Asset Management Company Ltd in the stock exchange by initial public offer (IPO) subject to approval from Reserve Bank of India and Department of Financial Services, Ministry of Finance, Government of India," said the filing.

Following the announcement, shares of Canara Bank inched-up 1.53 per cent to Rs 590 on Monday, commanding a total market capitalization close to 1.07 lakh crore. The scrip had settled at Rs 581.10 in the previous trading session on Thursday. Shares of Canara Bank have more than doubled investors' wealth in the last one year.

Canara Bank had announced the IPO of its mutual fund arm in December 2023 and the stock has surged more than 30 per cent since then. The stock is nearly 35 per cent up in the year 2024 so far, while it has gained more than 50 per cent in the last six-month period.

Global brokerage firm Goldman Sachs has preferred Canara Bank over bigger PSU lenders like State Bank of India and Bank of Baroda. It has a target price of Rs 660 on the Canara Bank with a 'buy' rating. The foreign broker has also picked smaller state-run lenders like Union Bank and Bank of India with 'buy' tags.

"Goldman Sachs believes that the consensus estimates for financial year 2025 are still conservative for public sector banks (PSBs) and hence he sees scope for a 10-20 per cent upgrade in their earnings per share (EPS)," it said.

Among other brokerage firms, Motilal Oswal has a buy rating on Canara Bank with a target price of Rs 650. However, Kotak Institutional Equities has a 'reduce' call on the PSU lender with a target price of Rs 530 apiece.

The board of Canara Bank had approved its maiden stock split in 1:5 ratio, implying that each share of the lender with a face value of Rs 10 each shall be split in five equity shares with a face value of Rs 2 each on February 26, 2024. However, the stock-split is subject to approval from the Reserve Bank of India.

Commenting on technical charts, Mileen Vasudeo, Senior Technical Analyst at Arihant Capital Markets said that Canara Bank is seeing a rounding base formation on the daily chart, which is a sign of strength.

"Even, the momentum indicator RSI is positively poised and the stock is outperforming the benchmark indices. Hence, one can buy the stock at current levels with a stop loss of Rs 560 for targets of Rs 626 and Rs 645 in the next couple of months," he said.

Seasoned investor Rekha Rakesh Jhunjhunwala owned 3,75,97,600 equity shares or 2.07 per cent stake in Canara Bank as of December 31, 2023. The lender is yet to file its shareholding pattern for the quarter ended on March 31, 2024.