Reduce Karur Vysya Bank; target of Rs 201: Geojit Financial Services

Geojit Financial Services research report on Karur Vysya Bank

Karur Vysya Bank Ltd., an Indian private commercial bank headquartered in Tamil Nadu, operates 841 branches across India with a total business value of ₹176,138cr. KVB specializes in retail and corporate banking, as well as in treasury operations. The Net loans and advances witnessed a growth of 12.4% CAGR for FY21-24. We anticipate that loan growth rate has peaked and expect it to be at 11.5% CAGR for FY25-FY27E. KVB has posted a deposit growth of 10.8% CAGR for FY21-24. However, the CASA ratio has consistently decreased from 35% in FY22 to 30% in FY24. We expect the CASA ratio to stabilize at 30% for FY25-27E and deposit growth to increase to 11.6%CAGR for FY25-27E. GNPA/NNPA has dropped to 1.1%/0.3% from 7.9%/3.4% in FY21. However, the rise in Portfolio At Risk (PAR) 31-180 and PAR 181-360 in the MSME segment indicates that NPA ratios have bottomed-out, leading to expectations of more delinquencies.

Outlook

We believe the bank’s loan growth rate and return metrics have peaked. With the stock currently trading at a 1-year forward P/Bk of 1.3x, which is near its all-time high valuation compared to its long-term average of 1x, we do not foresee further improvement in the stock. Therefore, we initiate coverage with a REDUCE rating, valuing the stock at 1.1x BVPS FY27E with a target price of Rs. 201.