Karnataka Bank reported a good set of numbers for the quarter ending June 30, 2018. Slippages at the bank reduced to 2.8 per cent of loans. What is also interesting is that the loan book saw a healthy growth of 24 per cent, in the quarter ending June 30, 2018, as compared to the previous quarter of last year. The management is looking at a loan growth of near 20 per cent in FY 2019-20.

The loan book is expected to continue to grow as the bank stays focused on the MSME sector. The asset quality at the bank has also stabilized.

Term deposits at the bank has seen a healthy growth, though the bank is now looking to improve its CASA (current and savings account) growth which saw a marginal decline.

The target in 2019-2020 for CASA at the bank is around 30 per cent. Karnataka Bank is also looking at a gross spread of 3.5 per cent in the coming years, which should improve profits at the bank.

Cheap on the valuations front

The stock of Karnataka Bank is quoting way below its book value. The price to book value of the stock is just 0.6 times, which mean the shares are rather cheap. The dividend yield at the bank has also been pretty decent at around 3.5 per cent.

The shares of Karnataka Bank have seen a sharp fall and are now quoting at near 52 week lows of Rs 108. At this price the downward risk on the stock is very limited. The bank in 2018-19 can report an EPS of Rs 20. This means the stock is trading at a p/e of just 5 times one year forward earnings. Interest rates are likely to rise in the coming year, though we do not expect that to be a major dent for the bank going forward.

Karnataka Bank shares are good to buy from a long term perspective.

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