Buy Karur Vysya Bank; target of Rs 78: Emkay Global Financial

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26 Aug, 2025 12:21

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Emkay Global Financial's report on Karur Vysya Bank

KVB reported a strong beat on PAT at Rs2.3bn vs. our estimate of Rs1.9bn, driven by better margins, higher other income and lower provisions. The bank is well on track after the clean-up in FY18-20, with the GNPA ratio trending down to 5.2% in Q1 from the highs seen in Q1FY20 of 9.2%. The RoA has also shown an improving trend and has now remained >1% for the second consecutive quarter. Overall credit growth surprised positively at 15% yoy/4% qoq, backed by strong growth in commercial/agri and continued momentum in retail. This, coupled with better investment yields, led to a nearly stable but healthy margins at 2.8%. The bank has guided for continued healthy growth momentum, NIM at 3.75% and lower LLP, which all should lead to a RoA of 1.1% in FY23. We raise our FY23/24/25 EPS estimates by 10%/8.0%/8.3% respectively, mainly driven by better growth and lower LLP, while its otherwise higher cost ratios should also see a moderation. We expect the bank to report a steady improvement in its RoA/RoE profile to 1-1.2%/11-14% from sub-1%/10% in the past five years.

Outlook

Retain Buy with a revised TP of Rs78 (0.7x Jun’24E ABV). We like KVB in the small-cap space given its steady improvement in RoE profile and management stability, best-in-class capital profile (Tier I >17%) and attractive valuations (0.5x FY24E ABV). The high dividend yield of 4-5% adds to the comfort.

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Karur Vysya Bank - 260722 - emkay