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Emkay Global
Karur Vysya Bank (Buy)
Target: ₹72
CMP: ₹57.65
Karur Vysya Bank has reported a strong PAT beat (₹160 crore vs. estimate of ₹100 crore), mainly on better margins, lower opex (despite providing for family pension) and contained provisions. Asset-quality performance was mixed. The GNPA ratio was down 59 bps q-o-q to 7.4 per cent, but the restructured pool inched up 120 bps to 3.2 per cent of loans - which is reasonable vs. peers.
Overall credit growth was subdued at 7.4 per cent y-o-y, with continued de-bulking of the corporate book, while retail fared well and posted 10 per cent growth y-o-y. Management expects to meet its earlier guidance of 12 per cent growth in FY22 on the back of a resurgence in unsecured products and corporate as economic activity revives in H2-FY22.
With better credit growth, margins and lower LLP, we expect the bank to report a steady improvement in its RoA profile to 0.7-1 per cent in FY22-24. That said, the bank has enough room to improve its otherwise sub-par operating leverage to drive RoAs beyond 1 per cent. We maintain our Buy rating with a revised Dec'22 TP of ₹72 (₹62 earlier), valuing the bank at 0.7x Dec'23 ABV, factoring in a better liability and capital profile; good/reasonable asset-quality performance in the current challenging times vs. peers; and an expected steady improvement in return ratios.
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