ICICI Securities recommended hold rating on Karur Vysya Bank with a target price of Rs 33 in its research report dated June 25, 2020.
ICICI Securities research report on Karur Vysya Bank
Karur Vysya Bank (KVB) delivered mixed financial performance in Q4FY20 with earnings growth at 40% YoY to Rs837mn driven by higher treasury income (Rs1.4bn) and controlled operating expenses (up only 2.5% YoY). Covid-19 related contingency buffer of only Rs275mn (~6bps of loans) poses risk of credit cost spilling over to FY21E. Moratorium (as at 21st June) at 41% of advances is down from ~53% in March despite greater share of commercial banking at 32% of total loans. Asset quality improved though driven by higher technical write-offs at Rs3.5bn and asset sale to ARCs (Rs0.9bn). The improvement was consistent through past four quarters with GNPL ratio falling to 8.7% in Q4FY20 from 8.9% in Q3FY20.
While we derive comfort from KVB’s encouraging performance in digitally underwritten new vintages and transformed business model with retail focus, lack of clarity on CEO succession and a somewhat prolonged trajectory of RoA recovery are key concerns. Maintain HOLD.
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