Axis Securities
Target: ₹69
CMP: ₹67.20
Karnataka Bank (KBL) reported a 43 per cent y-o-y and 5.4 per cent q-o-q growth in NII to ₹656 crore in Q4-FY22. Its NIM improved 84 bps y-o-y and 7 bps q-o-q to 3.25 per cent. Non-interest income growth was at 30.8 per cent sequentially, though it was down 31.2 per cent y-o-y. Operating expenses remained elevated at ₹533 crore, largely due to higher employee costs. Supported by lower provisioning, y-o-y earnings growth was robust, while on a q-o-q basis, earnings were down due to a higher one-time tax expense of ₹85 crore as the company migrated to the new tax regime.
The bank’s G/NNPAs improved to 3.9 per cent/2.4 per cent (4.1 per cent/2.5 per cent q-o-q). However, slippages for Q4-FY22 have gone up to ₹396 crore (about 3 per cent annualised), up from ₹298 crore (about 2.2 per cent annualised).
The management continues with its loan growth guidance of 15 per cent, aided by a strong credit demand pipeline. Concerns about the high restructured book and muted operating profits persist. However, with the FY22 loan growth at 10.2 per cent, the loan growth outlook for FY23 looks improved. We believe higher restructuring amidst increasing competition remains a challenge for smaller banks such as KBL.
We upgrade our rating to hold with a target of ₹69/share (0.3x FY24E ABV), implying an upside of 5 per cent on the CMP.