Karur Vysya Bank (Hold)
Karur Vysya Bank has reported higher PAT at ₹104 crore (est. ₹7 crore), mainly driven by contained provisions but partly offset by higher opex, which remains a drag. GNPA ratio improved to 7.8 per cent vs. 9.1 per cent pro forma NPA in Q3. Restructured loans were moderate at ₹950 crore (1.8 per cent of loans) and SMA 30+ book at 1.6 per cent of loans (2.5 per cent in Q3).
Overall credit growth was subdued at 9 per cent y-o-y due to de-bulking of corporate book, but retail growth was healthy at 10 per cent y-o-y/6 per cent q-o-q. KVB expects 12 per cent growth in FY22, largely loaded in H2, which coupled with lower NPA formation should support margins.
KVB aspires for 1 per cent RoA in FY23 and 1 per cent + in FY24; however, it is yet to lay down the path to achieve the target with the second wave adding to uncertainty. We believe controlling its otherwise higher cost ratios will be key to 1 per cent RoA, which will be an arduous task.
We retain our Hold rating on the stock with a TP of ₹62 (based on 0.7x FY23E ABV). However, further rerating will depend on the sustained asset quality performance and improvement in return ratios as guided.