Buy Karnataka Bank; target of Rs 192: Axis Direct

Axis Direct's report on Karnataka Bank

Karnataka Bank (KBL) reported PAT of Rs 134 cr ( up 10% y-o-y) in Q1FY18 , led by improvement in NII ( up 16% y-o-y) and other income ( up 25%y-o-y). The increase in other income was attributed by treasury income (up 78% y-o-y) and Fee Income (up 8% y-o-y). This quarter witnessed improvement in NIMs by 9 bps Y-o-Y (44 bps Q-o-Q ) due to improvement in CD ratio. Advances during the quarter grew 10% yo- y to Rs 38,484 cr. The new management focuses on credit growth along with branch expansion to 1,000 Branches and 2,500ATMs by March 2020.

Outlook

The management has set aggressive targets to increased business turnover to Rs 1,10,000 cr by 2018 ( 17% growth).The management is focusing on higher retail proportion , increasing the CD ratio to drive NIMs further and is confident of NPA recoveries going forward. Moreover, relatively lower exposure to other stress areas (SDR & S4A) is comforting. KBL aims to become a Preferred Banker to at least 1% of India’s population by March 2020. We maintain our earlier target of Rs 192/- (upside 22% from CMP) valuing KBL at 1.03 x P/Adj.BV and retain BUY rating.