Target: ₹155

CMP: ₹108.65

Despite higher provisions including hit on SR book, KVB reported a 13 per cent beat on PAT at ₹290 crore (vs est: ₹260 crore), mainly due to continued margin expansion, recovery from written-off accounts (₹89 crore) and lower effective tax rate (due to higher write-offs). As promised, the bank has brought down NNPA below 1 per cent (to 0.9 per cent), and expects incremental LLP to be lower; it thereby guides for exit RoA of 1.35 per cent in 4Q (1.3 per cent in Q3).

Overall gross credit growth was healthy at 16 per cent y-o-y/4 per cent q-o-q, while net credit growth at 16 per cent y-o-y/3 per cent q-o-q was due to higher write-offs. However, higher asset re-pricing of the MCLR portfolio led to 25-bp q-o-q improvement in NIMs at 4.3 per cent.

The Board has extended MD and CEO Ramesh Babu’s term (ending on July 29, 2023) for another three years, subject to approval by the RB.

KVB remains one of our top picks in the small banking space, given expected improvement in its RoA/RoE to a decadal high of 1.4 per cent/16 per cent, healthy capital ratios and emerging management credibility. We retain BUY, with a revised TP of ₹155, up from ₹125, and now value the bank at 1.2x Dec-24E ABV (vs earlier 1x Sep-24E ABV earlier).