Buy Karur Vysya Bank; target of Rs 590: Dolat Capital
Dolat Capital is bullish on Karur Vysya Bank (KVB) and has recommended 'Buy' rating on the stock with a price target of Rs 590 in its May 31, 2013 research report.
June 04, 2013 / 16:05 IST
Dolat Capital's research report on Karur Vysya Bank (KVB)
KVB’s 8 percent YoY rise in net profit to Rs 1.6bn was driven by the 19 percent growth in net interest income, treasury income and tax write-back as operating expenses and provisions rose. Overall asset quality showed improvement with QoQ fall in gross and net NPLs and stable provisioning coverage.Fresh NPL formations declined from Rs 14.4bn in Q3 to Rs 9.6bn in Q4. One account amounting to Rs 650mn contributed to the bulk of this quarter’s fresh NPLs. The bank restructured loans of Rs 3.3bn , of which Rs 1.25bn pertained to TNSEB.As per the management, the expansion in branch network and human resource during H2FY13 was the primary driver for the sharp rise in operating expenditure. As branches take around 9-12 months time to break-even, a significant number of branches opened during the past five quarters should start becoming more productive and contribute to the overall operational performance going forward. This should also help moderate the high cost/income ratio.Provision on restructured loans and on investment book were the main drivers for the sharp rise in provisions. Provisioning coverage ratio was stable at 75 percent. Loan book grew by 23 percent YoY driven by the high growth in loan against jewellery, agriculture and personal loan segment as the bank slowed down the growth in the corporate loan segment. Going forward, the growth would be driven by loans to SME, agriculture and personal loans. We believe that the bank should be able to deliver much higher than industry growth with stable asset quality. In our view, stable asset quality; faster improvement in productivity, moderation in pace of expansion should aid in maintaining the ROA, at time when NIM can see near term pressure. We remain positive on the stock with Buy rating and target price of Rs 590 (based on PBR of 1.8x on FY14 BVPS forecast)," says Dolat Capital research report.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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