Emkay sees 40% jump on Karur Vyasa Bank

Karur Vysya Bank, a scheduled commercial bank with its headquarters in Tamil Nadu, has seen a 49% increase in share price so far in 2022 (year to date, or YTD).

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According to stockbroker Emkay, Karur Vysya Bank (KVB) is on track to recapture the mojo that is driven by faster growth and reclaiming the >1% RoA (return on assets), with worries around asset quality stress and management stability/credibility now largely behind it.

Karur Vysya Bank, a scheduled commercial bank with its headquarters in Tamil Nadu, has seen a 49% increase in share price so far in 2022 (year to date, or YTD).

Karur Vysya Bank is the most alluring “Buy” among smallcap banks as a result of this, the best capital position (Tier I >17%) among peers, and favourable values despite the recent run-up, according to a note from Emkay.

The brokerage house increased the target price of the bank stock from 78 to 95 per share, representing a respectable 40% upside from the current stock level, factoring in an expected 4-5% increase in earnings for FY23–25E driven by better growth/lower LLP and rolling overvaluations as a result of better RoE. Although, according to the brokerage, the main dangers might be a slower-than-expected pace of growth or an improvement in asset quality because of weak macroeconomics.

“The bank has guided to reporting negative slippages in FY23 mainly due to better recovery trends in the RAM (Retail, Agri, MSME) segment and lower corporate stress reflecting in SMA 1/2, each at 0.5% of loans. Restructured book too is reasonable at 2.6% of loans,” the note stated.

Additionally, better corporate resolution continued w-offs and credit growth should drive down the GNPA ratio to 3% by FY25E (1Q @ 5.2%), from a high of 8.8% in FY19. This coupled with better PCR (65%) should pull down LLP and thus boost RoA to >1% in FY23 after 9 years, it added.

With the bulk of stress recognition behind and the best Tier I capital (>17%) among peers, the bank has now upgraded its credit growth guidance in FY23 to 15% from 13% and would look at higher growth thereafter. This growth will be mainly led by retail, agri and SME/Commercial Banking, while corporate growth will be more granular, given unwavering focus on RaRoC, Emkay added.