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Target: ₹185
CMP: ₹143.95
Karur Vysya Bank continued its upward RoA/RoE drift in Q2 as well, posting a robust 1.6/17 per cent, despite softening of NIM (4.1 per cent in Q2-FY24 vs 4.2 per cent in Q1FY24), mainly led by contained LLP. The bank reported strong credit (gross) growth, at 16 per cent YoY/5 per cent QoQ for Q2FY24, while focus remains on delivering higher profitability as against chasing growth.
Asset quality continued to improve, with fall in GNPA ratio by 26 bps QoQ to 1.7 per cent and in NNPA to a low 0.5 per cent, as the bank’s PCR increased to 73 per cent. NIM contracted by 12 bps QoQ to 4.1 per cent (due to rising CoF), as guided by Management, although the pace of contraction should ease from hereon.
Also read: HDFC Bank stock climbs nearly 2% post Q2 earnings
We expect KVB to register its decadal best RoA/RoE, at 1.5/16 per cent over FY24-26, led by healthy NIM/fees and contained LLP. We retain Buy on KVB with revised target price of ₹185/share (vs ₹178), rolling forward to 1.2x Sep-25E ABV.
Karur Vysya Bank remains our preferred pick in the small-cap banking space, given its superior returns/capital ratios and Management credibility.
Key risks: Slower-than-expected growth, faster decline in CASA leading to cost pressure, and resurgence of NPAs in the retail/SME sector due to macro dislocation.
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