Buy Karur Vysya Bank; target of Rs 512: Dolat Capital

Dolat Capital is bullish on Karur Vysya Bank and has recommended buy rating on the stock with a target of Rs 512 in its July 31, 2012 research report.

“In Q1 FY13, Karur Vysya Bank’s (KVB) net interest income (NII) grew by 23.9% YoY to Rs 2.5bn – 0.5% lesser than our estimates of Rs 2.6bn. KVB’s margin declined to 2.82% as against 3.04% in Q4 FY12 and 3.18% in Q1 FY12. Higher increase in cost of deposits (30bps QoQ) and 6bps QoQ decline in yield on advances led to decline in margin.”

“During this quarter, other income grew by 40.5% YoY to Rs 1.0bn from Rs 0.7bn in Q1 FY12 (ahead of our expectations of Rs 0.9bn). The non-fund income growth mainly led by robust fee income and jump in forex gains & treasury income aided operating profit. KVB’s operating profit grew 22.6% YoY to Rs 2.0bn in-line with our estimates. Write back of investment depreciation provision Rs 430mn off-setted higher NPA provisioning of Rs 328mn and thereby aided bottom-line growth. Net profit grew 25.1% YoY to Rs 1.5bn as against our and consensus estimates of Rs 1.4bn.”

“On asset quality front, gross NPA increase by 37% YoY and 17.4% QoQ to Rs 3.8bn; a key negative surprise in this quarter. The bank’s asset quality deteriorated with GNPA ratio increasing to 1.53% compared to 1.33% as on end-Mar’12 and net NPA ratio to 0.38% from 0.33% in Q4 FY12. However, PCR remains stable at 75.5% in Q1 FY13. During the quarter, the bank restructured Rs 500mn, loan amounting to Rs 297mn was closed, Rs 209mn loan amount was recovered and Rs 70mn slipped into NPA. Hence, the total outstanding restructured loan book at the end of Q1 FY13 slightly decline to Rs 6.5bn from Rs 6.6bn in Q4 FY12,” says Dolat Capital research report.

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