Buy Lakshmi Vilas Bank; target of Rs 111: Cholamandalam securities

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26 Aug, 2025 12:21

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Cholamandalam securities's research report on Lakshmi Vilas Bank

LVB’s advances grew 37% YoY (7%QoQ) to INR 271bn, supported by growth in corporate segment. However, the management has reiterated that the future growth in advances will be led by segments like Retail (more particularly home loans & vehicle loans) and MSME. The management also highlighted that going ahead, advances will grow by ~20% in FY19E. In 4QFY18 deposits grew 9%YoY to INR 333bn supported by growth of CASA deposits by 20.1%YoY. The current CASA ratio stands at 21.1% (vs 19.1% at 4QFY17) up by 195bps on YoY basis. Credit to Deposit ratio stands improved at 81.1% vs 78.4% in 4QFY17. Yield on funds saw a decline of 210bps YoY (-138bps QoQ) and stood at 7.03%. As a result, NIMs plunged by 176bps YoY (-129bps QoQ) to 1.34% in 4QFY18. Net Interest Income de-grew by 47.1% YoY (-45.2% QoQ) to INR 1.21bn, led by de-growth in interest income (-4.2% YoY).  Asset quality deteriorated with GNPA increasing sharply 731bps YoY (432bps QoQ) to 9.98% and NNPA increasing by 390bps YoY (139bps QoQ) to 5.66%. In absolute terms, GNPA increased by 88% QoQ to INR 26.9bn and NNPA increased by 37.5% QoQ to INR 14.6bn. The slippages are mainly on account of shifting of some of the restructured accounts to substandard status as well as normal slippages that have happened in the course of the year, which were almost entirely out of the watch list created by the bank. The bank’s watch list has now come down to INR 4bn from INR 25bn earlier. PCR stood at 55% as against 59.5% in 4QFY17.

Outlook

Post capital infusion, the loan book is expected to grow ~20%, with major share being contributed by MSME & retail segments. However, asset quality remains a cause of concern due to continued concentration of corporate segment in the loan book. Going forward, falling yields coupled with the impact of provisioning cost may drag the PAT for the coming quarters. The stock is currently trading at 1.3X FY20E P/BV and 5.4X P/E FY20E. We maintain our MARKETPERFORMER rating and revise the target price to INR 111, assigning a FY20E P/BV of 1.4X.

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