Buy Karur Vysya Bank; target of Rs 165: Emkay Global Financial

Emkay Global Financial's research report on Karur Vysya Bank

KVB has staged a strong recovery over the past two years, from its corporate asset quality woes. Bank reported net credit growth of 16% YoY in FY23, mainly led by strong traction in the retail/agri/MSME portfolio. Within Retail, mortgages remain the key growth driver; Bank now plans to accelerate gold loan growth too. Separately, KVB targets to gradually scale-up the MFI book, for which it is building the right team/processes. That said, the bank believes that its growth strategy will be guided only by a favorable risk-reward ratio and it will, therefore, not chase growth without profitability.

Outlook

We expect KVB to deliver the best RoA/RoE among peers, at 1.5%/15-16% over FY24-26E, with NIMs/fees and LLP being key drivers. We retain BUY, with revised TP of Rs165 (Rs155 earlier), factoring-in 4-6% earnings upgrade and valuing KVB at 1.2x FY25E ABV. KVB remains our preferred pick in the small-cap banking space, given superior returns/capital ratios and Mgmt credibility.