Buy Karur Vysya Bank; target of Rs 165: ICICI Securities

ICICI Securities research report on Karur Vysya Bank

Despite 18bps QoQ NIM decline (though in-line) and Rs250mn of floating provisions, Karur Vysya Bank (KVB) reported strong Q1FY24 PAT at Rs3.5bn (8% beat) driven by healthy ‘other income’ and ~45% QoQ drop in provisions led by continued strong asset quality. We like KVB for 1) one of the lowest cost of deposits among peers, 2) balanced loan book and broad-based growth, 3) amongst lowest SMA 1+2 book across peers at 20% PCR on RSA and 100% PCR on SR, while it continues to have one of the lowest SMA 1+2 book across peers. After a broadly stagnant employee count for past >5 years, the bank intends to hire aggressively. This would likely lead to higher ‘cost to income’ (C/I) ratio (captured in our estimates), but would also improve franchise strength, in our view. Our estimates are broadly unchanged as we expect 14-15% YoY loan growth, 1.4-1.45% RoA for FY24/25E and >15% RoE during the same period.

Outlook

Maintain BUY with an unchanged target price of Rs 165, valuing the stock at ~1.2x FY25E ABV, implying 30% upside. Key risks: Growth moderation and higher-than-expected opex.

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