Buy This Small Cap Banking Stock Available At A P/E of 4 & P/B Of 0.3 Times

Karnataka Bank has reported a good set of quarterly numbers for the period ending Dec 31, 2021. The bank is also taking a series of measures to expand and boost profitability, which makes this small cap stock a good buy.

Sound financial performance

For the quarter ending Dec 31, 2021 the bank reported good numbers. The deposits of Karnataka Bank registered a 6.1% growth to Rs 78429 in the third quarter of 2021 from Rs 73826 crores in the quarter ending Dec 31, 2020.

52-week high	Rs 81.85
Current market price	Rs 68
52-Week Low	Rs 51

The balance sheet size expanded to Rs 90958 from Rs 84,000 crores. The operating profits saw a solid 20% jump to Rs 356.32 crores.

Net profits at the bank grew to Rs 146.57 crores for the quarter ending Dec 31, 2021 as against Rs 135.38 crores in the quarter ending Dec 31, 2020.

Effective credit monitoring system

The bank has put in place effective monitoring systems. Internal Credit Rating of all the borrowers. Credit exposure above Rs 25 lakh are rated borrower-wise and credit facilities below Rs 25 lakh & all schematic advances including agri-credit proposals are rated under 'Pool based approach'. Also, 'KBL96' rating model is developed for all sanctions under digital journey.

This has helped the gross non performing assets at the bank to gradually see an improvement. In fact, the gross NPA for Dec 2021 has now come down to 4.11% from 4.5%.

Effective ALM and mid office set up to monitor Liquidity risk and Market risk at Karnakata Bank is done on a continuous basis.

Valuation and view

As the economy picks-up we believe that Karnataka Bank will see much better performance. For the quarter ending Dec 31, 2021, the bank reported an EPS of Rs 4.70. If you annualize the same it works to more than Rs 18. This means the stock at Rs 68 is trading at a p/e of less than 4 times. The price to book of the stock is just 0.32 times. The bank in the past has also been offering good dividends leading to good dividend yields.

Our only concern right now are the markets, which we believe are not cheap. With interest rates across the globe likely to rise, there is a possibility that equity markets might see some selling pressure. Having said that we also believe that performance of corporate India will be much better given that covid is behind us.

In any case, we believe that valuations of Karnataka Bank are cheap and hence the stock can rally in the short to medium term. The shares were last trading at Rs 68.15on the NSE.

Disclaimer:

Investing in equities is risky and investors must therefore understand the risk. The author and Greynium Information Technologies Pvt Ltd would not be responsible for any losses caused based on the article.The author and his family do not hold shares of Karnataka Bank. Investors should exercise caution on account of heightened volatility in the markets currently.