The Hindu Business Line : Karur Vysya Bank: Buy

Relative to size and past performance, the stock is not under-valued. With steady earnings growth, returns for an investor willing to hold with a three-year perspective would be attractive. If interest rates keep edging higher then growth in profits could turn out to be more robust than anticipated.

Karur Vysya Bank would also remain an attractive candidate to benefit from any consolidation in the industry. By 2009, norms relating to the entry of, and holding of majority stakes by foreign and private Indian entities in Indian banks may become liberal. Share price returns could thus turn out to be even more attractive.

In the first half of financial year 2006, Karur Vysya Bank's performance has been moderate. Advances growth at about 22 per cent was below industry average. Net interest income growth in the first half too has been unimpressive. Net profit growth, however, has been impressive at about 20 per cent because of a sharp decline in charges for deterioration in quality and value of advances and investments. It could end the financial year 2006 with a similar rate of growth in profits.

The bank's capital adequacy position is also comfortable. It could thus increase its debt-equity ratio, which will boost profit growth without further equity expansion. Its quality of loans is also much better than industry average. The credit-deposit ratio, which is almost close to 75 per cent, is comparable to that of new banks.

With advances of banking industry growing at a rapid pace, Karur Vysya Bank is well placed to take advantage of the growth prospects.

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