This PSU bank stock is undervalued: But govt has big plans with it | Possible mutlibagger?

Kolkata: Canara Bank can be an unsung hero on D Street. It is a public sector bank that has quite strong fundamental but appears undervalued. Most interesting, the government has major plans. The bank registered its highest operating profit in FY25 and net profit rose by more than 15% y-o-y. The gross NPA (non-performing assets) of the lender is 2.35% while net NPA is 0.54%. The asset quality is robust since the provision coverage ratio is 94%. (Provision coverage ratio of a bank is the ratio of a bank's provisions for loan losses to its total NPA. The higher the ratio, the stronger the position of the lender.

Canara Bank stock were trading at Rs 140.75 at the close of trade on Tuesday, November 11, 2025. The stock has gained close to 2.7% in the past one week, more than 30% in the past three months and more than 35% in the past one year. The market cap of the stock is Rs 1,27,596.85 crore (as of November 7, 2025). Canara Bank also recently announced a 200% final dividend (or Rs 4 per share). In Q2 FY25-26, the bank reported revenue of Rs 42,013.74 crore, net profit of Rs 4,850.03 crore and EBITDA of Rs 28,762.76 crore. The stock also recently hit a new 52-week high.

As a whole, Indian banks are in the pink of their health. The credit cycle is improving and PSU banks are returning to the growth path after reform. Balance sheets are strong, profitability has risen. Canara Bank is emerging as a major PSU bank that has aligned itself with the three crucial sectors -- retail, MSME and infrastructure financing. The bank's business model is based retail, agriculture and MSME. By limiting corporate exposure, the bank has maintained risk management and margin stability. The gold loan portfolio is one of the strong points of the bank.

The Centre is now preparing for the next round of mergers of public sector banks. According to reports, the government may merge some large public sector banks by fiscal year 2027. Market buzz suggests that Canara Bank may also be included in the list of potential banks in this new phase.

Canara Bank witnessed its highest operating profit in FY25. While net profit jumped by more than 15% year-on-year, gross NPA stood at 2.35% and net NPA was 0.54%. The bank has a conservative provisioning policy, which can act as a buffer for the upcoming Expected Credit Loss framework. The management expects credit cost to remain below 1%. The bank has also undertaken a drive to recover written-off loans, which continue to positively impact profitability.

The PE ratio stands at 6.6, which is close to the 5-year average of 5.9. The Price-to-Book ratio has declined to 1.1 from 1.35-1.4 in 2024. But the book value is steadily increasing. It signals a strong fundamental position for the bank. The bank's Return on Assets is 1% and Return on Equity is 18%,. Both these profitability parameters are good for a PSSU bank. The low valuation and high return metrics can make this bank an undervalued player with strong growth possibilities.

The Bank boasts of a pan India network of more than 9,600 branches, 10,200+ ATMs and 13,000+ Banking Correspondent Points apart from four international branches. It has a robust presence in rural and semi-urban areas has improved Current Account-Savings Account growth. It has several subsidiaries in several growing business areas such as Canara Robeco AMC, Canara HSBC Life, CanFin Homes, and Canbank Factors.