Buy Karnataka Bank; target of Rs 200: Centrum Research

Centrum's research report on Karnataka Bank

We retain Buy on Karnataka Bank (KBL) with TP unchanged at Rs200 (valued at 1.3x FY19E ABV). Q2’18 results were strong on all fronts - loan growth accelerates, margins improve, fee income strengths further and asset quality – ie slippages moderate. Commentaries on each of the above key parameters remain encouraging and thus even as we factor in elevated provisioning; we believe RoE’s are set to inch towards 12% levels by end-FY19E. Capital position remains strong; valuations at 1x FY19E ABV remain undemanding.

Outlook
KBL Q2’18 results were in-line with our estimates on several fronts. We, however have tweaked our estimates on provisioning front. Though at a nascent stage of transformation, the bank has made strong in-roads in its journey of RoE improvement. The transformational exercise as envisaged will further augment overall RoE’s. Valuations at 1x FY19E ABV remain attractive. Retain Buy with TP at Rs200 (valued at 1.3x FY19E ABV). Higher than expected slippages and lower than expected credit growth remain near-term risks. For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. Karnataka_Bank_231017_1