Buy Karur Vysya Bank, target price Rs 88: HDFC Securities

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Buy Karur Vysya Bank, target price Rs 88:  HDFC Securities


Securities has buy call on with a target price of Rs 88. The current market price of Karur Vysya Bank is Rs 71.2. Time period given by analyst is six months when its price can reach defined target.

Karur Vysya Bank, incorporated in the year 1916, is a banking company (having a market cap of Rs 5676.67 crore).

It’s key products/revenue segments include interest and discount on advances and bills, income from investment, interest on balances with RBI and other inter-bank funds and interest for the year ended March 31, 2022.


Financials

For the quarter ended June 30, 2022, the company has reported a standalone total income of Rs 1672.60 crore, up 3.58 per cent from last quarter total income of Rs 1614.75 crore and up 4.80 per cent from last year same quarter total income of Rs 1595.93 crore. The bank has reported net profit after tax of Rs 228.75 crore in latest quarter.

Investment Rationale

In Q1FY23, KVB has clocked multi-year high RoA of 1.1 per cent, the asset quality also improved. Management has guided for 15 per cent growth in loan book in FY23, while maintaining the NIM at current level.

Net slippages are estimated to be in negative territory for short term. The loan portfolio quality stands superior with high share of secured retail loans and higher rated corporates loans (rated BBB and above 65% in June 22 vs 47% in June 21) mix.

The brokerage have envisaged 11% CAGR in Net Interest Income and 21% CAGR in net profit over FY22-FY24E. With a steady inch-up in PCR to 65%, SMA-1+2 portfolios at sub-1% and rising collection efficiencies, we expect credit costs to average 110bps vs170bps in FY22. Strong focus on digitization could keep opex in check.

Further, they have estimated that the loan book would grow at 16%CAGR over this period. ROAA could sustainably improve to 1% by FY24E. Due to improving loan growth metrics and asset quality parameters, the stock could undergo gradual rerating over a period of time.

The brokerage feels that investors can buy Karur Vysya Bank between Rs.71-73 (0.71x FY24E ABV) and add more on dips to Rs.63 (0.62x FY24EABV) band. They expect the base case fair value of Rs 81 (0.8x FY24E ABV) and the Bull case fair value of Rs 88 (0.87x FY24E ABV) over the next two quarters.

Promoter/FII Holdings
Promoters held 2.28 per cent stake in the company as of June 30, 2022, while FIIs owned 15.43 per cent, DIIs 22.76 per cent.

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