Broker's call: Karur Vysya Bank (Buy)

| Updated on March 18, 2020 Published on March 19, 2020

ICICI Securities

Karur Vysya Bank (Buy)

CMP: ₹27.8

Target: ₹60

Karur Vysya Bank is all set to improve its RoA materially in FY21e on the back of — a) moderation in credit cost owing to declining trend in incremental stress asset formation, notably during 9MFY20 GNPL fell 1 per cent from FY19 closing portfolio and higher provision cover at 56 per cent on existing GNPL portfolio; b) likely improvement in NIM from December 2019 level due to scope for CD ratio expansion (about76 per cent as at December 2019) and incremental lending in high-yield retail segment; and c) tight control on cost as reflected in 9.8 per cent CAGR in total operating expenses vs 12.5 per cent CAGR in net revenue between FY14-19.

Further, industry-leading LCR at about 306 per cent and KVB’s strong brand recall in its home State, that is, Tamil Nadu gives us comfort to believe that KVB would comfortably manage any short-term deposit outflow, if at all, owing to the current unrest amongst retail depositors due to the ongoing moratorium in one large private sector bank.

Maintain ‘buy’ with a revised target price of ₹60 (earlier: ₹80) as we cut our exit multiple to 0.85x (earlier 1x) to factor in any likely delay in CEO replacement.

Published on March 19, 2020
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