Edelweiss' research report on Karnataka Bank
Karnataka Bank (KBL) reported PAT of INR969mn (down 9% YoY), marginally lower than our estimate on continued asset quality stress. NII was subdued given NIMs decline and below industry loan growth; this, to an extent, was offset by lower opex (down 13% YoY). Slippages spiked to INR3.8bn (4.7% versus past 6 quarters’ run rate of 3%) driven by services and corporate segments. However, higher recoveries (aided by INR1.5bn sale to ARCs) restricted GNPL rise to 3.56%. Though we remain cautious on regional banks amidst a changing competitive landscape, higher share of retail (51%) and valuation of 0.5x FY18E P/ABV lends comfort. While we roll forward to FY18E numbers, we assign lower multiple to factor in slower-than-expected RoE improvement. Maintain ‘BUY’ with revised TP of INR150 (on 0.7x FY18E P/ABV; earlier INR175).
Outlook and valuations: Retail mix improving; maintain ‘BUY’
With KBL focused on improving retail proportion, levers remain for NIMs improvement even as bank moves to MCLR regime. The stock trades at 0.5x FY18E ABV, capturing risks and leaving limited downside. We maintain ‘BUY/SP’.For all recommendations, 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.
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