Emkay Global Financial's research report on Karur Vysya Bank
KVB reported further improvement in growth trajectory – gross credit growth at 15.9% YoY/5% QoQ (multi-quarter high) vs. 14% YoY/3.5% QoQ in 1Q. We believe the growth is mainly driven by the retail and agri segments, with some pick up in corporate credit as well. Within retail, we believe growth was led by mortgages, agri gold and CV loans. KVB had increased its growth guidance to 15% from 13% for FY23 which is a more realistic target; and, if the momentum accelerates, bank could even overshoot this mark. Deposit growth, too, was healthy, at 12.5% YoY, while CASA ratio was largely stable at 35%. However, better credit growth led to improvement in LDR to 82% vs 81% in Q1. Thus, we expect the bank’s already strong margins to further inch up, thereby supporting core profitability. We expect NPAs for KVB to trend down in the current quarter (in line with most banks’), led by controlled slippages and better collection trends. The bank expects slippage ratio to be contained at 1-1.5% in FY23 which, coupled with healthy PCR of 65%, should lead to moderation in LLP, thus driving up RoA beyond 1% on a sustainable basis.
With asset quality stress and concerns around management stability/credibility now largely behind, we believe KVB is on course to regain its mojo (led by accelerated growth) and reclaim the >1% RoA. KVB, traditionally has had a higher CI ratio (at 53-60%), mainly due to higher operational spend, including staff cost, which we believe will gradually moderate to 17%) among peers and attractive valuations (0.7x FY24E ABV), despite the recent run-up, makes KVB the most attractive pick among small-cap banks. We retain BUY on the stock with TP of Rs95, valuing the bank at 0.8x Sep-24ABV; better than expected delivery on growth/asset quality could further drive up valuations.
At 12:04 hrs Karur Vysya Bank was quoting at Rs 80.85, up Rs 2.00, or 2.54 percent.
It has touched an intraday high of Rs 81.45 and an intraday low of Rs 79.75.
It was trading with volumes of 287,159 shares, compared to its thirty day average of shares, a decrease of percent.
In the previous trading session, the share closed down 3.13 percent or Rs 2.55 at Rs 78.85.
The share touched its 52-week high Rs 94.90 and 52-week low Rs 41.75 on 16 September, 2022 and 16 May, 2022, respectively.
Currently, it is trading 14.81 percent below its 52-week high and 93.65 percent above its 52-week low.
Market capitalisation stands at Rs 6,472.91 crore.
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.