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 May 29, 2012 research report.

“In Q4 FY12, Karur Vysya Bank’s (KVB) net interest income (NII) grew 23.5% YoY to Rs 2.6bn – 7.8% higher than our estimates of Rs 2.4bn. KVB’s margin declined to 3.04% as against 3.06% in Q3FY12 and 3.27% in Q4 FY11. During this quarter, other income grew by 75.7% YoY to Rs 1.1bn from Rs 0.6bn in Q4 FY11 (ahead from our expectations of Rs 0.8bn). Much higher other income led to deviation at operating & bottom-line levels. KVB’s operating profit stood at Rs 2.1bn compared to our estimates of Rs 1.7bn. Lesser than expected total provisions (excluding tax expenses) of Rs 68mn (as against Rs 360mn in Q3 FY12) aided bottom-line growth.”

“Net profit grew 27.3% YoY to Rs 1.5bn (Dolat est: Rs 1.2bn, Consensus est: Rs 1.3bn). On asset quality front, there is slight reduction in gross NPA to Rs 3.21bn. KVB’s gross slippage ratio decreased to 0.83% from 0.91% in Q3 FY12. The bank’s asset quality marginally improved with GNPA ratio declining to 1.33% compared to 1.45% as on end-Dec’11. However, net NPA ratio rose to 0.33% from 0.29% in Q3 FY12. Lower provisioning led to a drift in PCR to 75.5% from 80% in Q3 FY12. The total outstanding restructured loan book at the end of Q4 FY12 rose to Rs 6.56bn from Rs 4.9bn in Q3 FY12.”

“In FY12-14, the bank would report RoAA and RoAE in a range of 1.2%-1.3% and around 18-20% respectively. We revise our FY13 & FY14 earnings estimates marginally and rollover our target price on FY14’s estimates. We upgrade our stock rating to buy with a revised price target of Rs 512. At current price, it quotes at 1.4x and 1.3x ABV FY13 and FY14 respectively; based on our target price, the stock would trade at 1.6x adjusted book value FY14,” says Dolat Capital research report.   

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