Karur Vysya Bank an underperformer: Karvy Stock Broking

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Karur Vysya Bank an underperformer: Karvy Stock Broking

Karvy Stock Broking has recommended an underperformer rating on Karur Vysya Bank with a target of Rs 452 in its October 28, 2010 research report.

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ALSO READ See previous views by Karvy Stock Broking See what other Experts & Brokerages are saying about Karur Vysya See messages about Karur Vysya Karur Vysya BSE | NSE 01/06/12 Are Mutual Funds betting on Karur Vysya?

Karvy Stock Broking has recommended an underperformer rating on Karur Vysya Bank with a target of Rs 452 in its October 28, 2010 research report.

"Karur Vysya Bank (KVB) net profit was below our estimates by 22.0% to Rs 1.03 bn in Q2FY11, primarily due to higher tax and employee expenses. NII was marginally lesser than our estimates by 1.6% to Rs 1.7 billion and non interest income was higher than our estimates by 44.7% to Rs 781 million. Robust growth in loan book supports NII: In Q2FY11 KVB's NII grew by 25.2% (Y/Y) and 2.1% (Q/Q) to Rs 1.7 billion on back of 27.5% (Y/Y) and 5.9% (Q/ Q) expansion in loan book to Rs 150.4 billion. Asset quality improves sequentially: During the quarter the bank's asset quality showed stability sequentially, with gross NPA's and Net NPA's at Rs 2.4 billion and 245 million respectively. Gross NPA ratio improved to 1.55% from 1.67% in Q1FY11 and net NPA ratio at 0.16% from 0.17% in Q1FY11. Treasury income supports non interest income: Non interest income increased by 42.4% (Y/Y) and 49.7% (Q/Q) to Rs 781 million primarily due to strong treasury income of 220 million in Q2FY11 compared to Rs 55 million in 2QFY10 and Rs 20 million in Q1FY10."

"In 2QFY11 deposits grew by 28.6% (Y/Y) and 4.8% (Q/Q) to Rs 212.5 billion and CASA deposits grew by 39.4% (Y/Y) and 10.6% (Q/Q) to Rs 53.8 billion. During the quarter CASA share of the bank stood at 25.3% from 24.0% in 2QFY10 and 23.4% 1QFY11. During the quarter operating expenses increased by 34.4% (Y/Y) and 15.6% (Q/Q) to Rs 1.1 billion. Employee cost increased by 64.5% (Y/Y) and 15.5% (Q/Q) to Rs 581 million and other expenses increased by 10.4% (Y/Y) and 15.6% (Q/Q) to Rs 491 million. In 2QFY11, the bank's margins declined sequentially by 7 bps to 3.3% as yields on advances declined by 4 bps to 10.94% and cost of funds increased marginally by 3 bps to 6.53% during the same period. During the quarter, the bank restructured loans amounting to Rs 288 million and slippages amounted to Rs 98 million. However there was a recovery of Rs 913 million. As a result the cumulative restructured loans amounted to Rs 4.9 billion from Rs 5.6 billion in Q1FY11."

"We maintain our earning estimates for FY11 and FY12 and our target price at Rs 452 and change our stock rating to 'Under performer' from Market performer rating due to increase in market price of the stock. At current price the stock trades at 2.1x adjusted book value FY12, based on our target price the stock would quote at 1.8x ABV FY12," says Karvy Stock Broking research report.

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To read the full report click on the attachment