Emkay Global Sees An Upside Of 43% On This Bank Stock, Suggests A 'Buy'

Emkay Global, a prominent stock-broking firm, sees a potential upside of 43% from the stock of Karun Vyasa Bank (KVB). The brokerage firm is of the view that the stock can grow and reach at Rs 165 per share, set as the target price.

The firm has cited the following reasons for its bullish stance on the bank:

Good profitability: KVB has staged a strong recovery over the past two years, from its corporate sset quality woes. The bank reported net credit growth of 16% YoY in FY23, mainly led by strong traction in the retail/agri/MSME portfolio. The bank has been consistently profitable in recent quarters.

Strong asset quality: Karur Vysya Bank's asset quality has improved significantly in recent quarters. The bank's gross non-performing assets (GNPAs) ratio has come down to 0.7% as of March 31, 2023, from 2.3% a year ago.

The bank has guided for contained slippages at 1% for FY24 which, coupled with better recovery/w-offs, should lead to steady reduction in GNPA to below 2%. The SMA2 book stands at only 0.2%, while the RSA book too has declined, to 1.5% of loans, with limited risk of relapse

CASA ratio improvement: KVB has reasonable CASA ratio at 33%, which it nevertheless plans to gradually improve to 40% in the long run, equipped with a mix of physical & digital strategy and thus help sustain its healthy NIMs (>3.8-4%). The bank believes that a cluster-based approach would help it not only to ramp up its MSME asset book, but its CASA base as well.

Strong capital base: Karur Vysya Bank has a strong capital base. The bank's capital adequacy ratio (CAR) as of March 31, 2023, was 14.3%, which is well above the regulatory requirement of 9.0%.

Good growth prospects: The bank has good growth prospects. It has a strong presence in the South Indian market, which is one of the fastest growing regions in India. The bank is also expanding its presence in the North Indian market.

The bank believes that its growth strategy will be guided only by a favourable risk-reward ratio and it will, therefore, not chase growth without profitability.

View & rating

"We expect KVB to deliver the best RoA/RoE among peers, at 1.5%/15-16% over FY24-26E, with NIMs/fees and LLP being key drivers. We retain BUY, with revised TP of Rs165 (Rs 155 earlier), factoring-in 4-6% earnings upgrade and valuing KVB at 1.2x FY25E ABV. KVB remains our preferred pick in the small cap banking space, given superior returns/capital ratios and management credibility," the stock-broking firm added.

Scrip movement

In the last one year, the share price of Karur Vyasa Bank has surged by 147.48% while in three years, it has grown rapidly by 343.93%. The current stock price is Rs 115.20 per share, rallied by 1.19%.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the author or the brokerage house will not be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.