The Karur Vysya Bank shares scaled a fresh 52-week high of Rs 152 on October 18 as the stock rallied 7 percent since the lender posted record profit for the September quarter a day before.
Given the bank's modest core performance, broad-based advances growth, good asset quality, and positive outlook, brokerages remain bullish on the stock.
Karur Vysya Bank reported a net profit of Rs 378 crore for the quarter ended September 2023, a 51 percent on-year increase. Its operating profit grew 12 YoY to Rs 638 crore, and NII jumped 11.45 percent to Rs 915 crore. The bank is well-placed to deliver its targeted RoA of around 1.5 percent through accelerated efforts on leveraging its product mix, better cross-sell outcomes and productivity gains, according to analysts at HDFC Securities.
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Brokerages bullish
With continued deposit repricing likely in the upcoming quarter, the brokerage sees a limited upside to the bank's margins and negligible scope for operating leverage. HDFC Securities maintained an 'add' call on the Karur Vysya Bank stock and revised the target price upwards to Rs 150 per share.
Karur Vysya Bank's net interest margins (NIMs) softened 12bps QoQ to 4.1 percent, partly offset by a moderate hike in MCLR during the September quarter. The stock remains Emkay Global's most preferred pick in small-cap banking space, given its superior return ratios, healthy capital ratios, and management’s credibility. The brokerage retained a 'buy' rating on the stock, and raised the target price to Rs 185 from Rs 178 earlier.
According to analysts at Emkay Global, slower-than-expected growth, faster decline in CASA leading to cost pressure, and resurgence of NPAs in the retail/SME sector due to macro dislocation, might be the key risks for the stock in the near term.
With NIM under pressure and higher opex, Karur Vysya's loan growth, recovery from written-off accounts and sustained lower credit cost may be key to delivering the aspirational 1.5 percent ROA target, noted Elara Securities. The brokerage believes that the lender has overcome tough times, and is reasonably positioned to deliver sustained return ratios.
"We reiterate KVB as a top pick within our small-cap banks universe," the brokerage said as it raised the target price to Rs 165, given better earnings visibility. It believes that the inherent limitations within the bank's operational structure are currently preventing it from achieving higher returns or profitability. These limitations will continue to restrict the potential for improved returns until the market sees effort toward transformation.
Also Read | Karur Vysya stock trades 7% higher on Q2FY24 gains
The Karur Vysya Bank shares were trading at Rs 147.65 on the National Stock Exchange at 11:30am. The stock has surged 33 percent so far in 2023, outperforming benchmark Nifty 50. In the last one year, the stock has rallied nearly 60 percent.
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