Banking Stock Records Strong Beat On PAT at Rs. 2.3bn, Buy For 40% Sharp Return: Emkay Global

Top brokerage firm Emkay Global recommends investors buy the stocks of Karur Vysya Bank (KVB). The firm mentioned, "KVB has reported a strong beat on PAT at Rs. 2.3bn vs. our estimate of Rs. 1.9bn, driven by better margins, higher other income, and lower provisions."

Stock To Buy: Target Price, Current Market Price

The Current Market Price (CMP) of Karur Vysya Bank (KVB) is Rs. 55. Emkay Global has estimated a Target Price for the stock at Rs. 78. This stock has the potential to give a 40.90% return, in the upcoming 1 year. This is a small-cap stock with a market capitalization of around Rs. 4,512 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 55
Target Price	Rs. 78
Potential 1 year return	40.90%
52 week high share price	Rs. 60.70
52 week low share price	Rs. 38.40

Karur Vysya Bank is well on track after the clean-up in FY18-20, with the GNPA ratio trending down to 5.2% in Q1 from the highs seen in Q1FY20 of 9.2%. Its retail growth was also been reasonable at 11% YoY/3%, mainly driven by mortgages, auto and jewel loans.

Emkay Global: Why Should You Buy This Banking Stock?

According to the firm's report, the bank's overall credit growth surprised positively at 15% YoY/4% QoQ, backed by strong growth in commercial/Agri and continued momentum in retail. This, coupled with better investment yields, led to nearly stable but healthy margins at 2.8%. The bank has guided for continued healthy growth momentum, NIM at 3.75%, and lower LLP, which all should lead to an RoA of 1.1% in FY23.

"We raise our FY23/24/25 EPS estimates by 10%/8.0%/8.3% respectively, mainly driven by better growth and lower LLP, while its otherwise higher cost ratios should also see a moderation. We expect the bank to report a steady improvement in its RoA/RoE profile to 1-1.2%/11-14% from sub-1%/10% in the past five years. We like KVB in the small-cap space given its steady improvement in RoE profile and management stability, best-in-class capital profile and attractive valuations (0.5x FY24E ABV). The high dividend yield of 4-5% adds to the comfort," Emkay Global stated.

Company portfolio

Karur Vysya Bank carries a tradition of above 100 years. "Total business of the bank was at Rs. 116098 crore, with total deposits at Rs. 63278 crore and total advances at Rs. 52820 crore. The net owned funds of the bank are Rs. 6960 crore, the Basel III CRAR was at 18.98% with CET1 of 16.95%, and the Net NPA was at 3.41%. The bank has been earning profits since inception and has been declaring dividends uninterruptedly," the bank informs. The RoA has also shown an improving trend and has now remained >1% for the second consecutive quarter. Fresh slippages in Q1 at Rs. 1.4bn (1.1% of loans) were surprisingly low among the last 25 quarters, mainly due to the lower stress in the corporate book.

Disclaimer

The above stock was picked from the brokerage report of Emkay Global. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.