Buy This Small Cap Private Sector Banking Stock, Target Price Rs 95: Emkay Global

Emkay Global suggests "buy" Karur Vysya Bank (KVB) for a target price of Rs 95 per share to get a decent return around 18% in 12 months. KVB is a private sector small-cap bank headquartered in Karur, Tamil Nadu. It has a market capitalisation of Rs 6,472.76 crore.

Stock Outlook & Returns

The current market price of Karur Vysya Bank stock is Rs 80.90 per share on NSE. Its 52 week low level recorded on 16 May 2022 is Rs 41.75 and the 52 week high level recorded on 16 September 2022 is Rs 101.70, respectively.

The stock in a week surged 1.32%, whereas, it has given a massive 82.82% positive returns in the past 3 months. Over the past 1 year, it gave 69.25% positive returns. In the past 3 years, it gave 37.7% positive returns. It gave a 38.2% negative return in the past 5 years.

Business Update - Q2FY23

According to the brokerage firm, KVB reported further improvement in growth trajectory - gross credit growth at 15.9% YoY/5% QoQ (multi-quarter high) vs. 14% YoY/3.5% QoQ in 1Q. "We believe the growth is mainly driven by the retail and agri segments, with some pick up in corporate credit as well. Within retail, we believe growth was led by mortgages, agri gold and CV loans. KVB had increased its growth guidance to 15% from 13% for FY23 which is a more realistic target; and, if the momentum accelerates, bank could even overshoot this mark," the brokerage has said.

It added, "Deposit growth, too, was healthy, at 12.5% YoY, while CASA ratio was largely stable at 35%. However, better credit growth led to improvement in LDR to 82% vs 81% in Q1. Thus, we expect the bank's already strong margins to further inch up, thereby supporting core profitability."

Brokerage's comments

"We expect NPAs for KVB to trend down in the current quarter (in line with most banks'), led by controlled slippages and better collection trends. The bank expects slippage ratio to be contained at 1-1.5% in FY23 which, coupled with healthy PCR of 65%, should lead to moderation in LLP, thus driving up RoA beyond 1% on a sustainable basis," the brokerage has said.

Outlook

According to the brokerage with asset quality stress and concerns around management stability/credibility now largely behind, we believe KVB is on course to regain its mojo (led by accelerated growth) and reclaim the >1% RoA. KVB, traditionally has had a higher CI ratio (at 53-60%), mainly due to higher operational spend, including staff cost, which we believe will gradually moderate to <50% due to improved income and a steady decline in staff cost. This, coupled with the best capital position (Tier I at >17%) among peers and attractive valuations (0.7x FY24E ABV), despite the recent run-up, makes KVB the most attractive pick among small-cap banks. "We retain BUY on the stock with TP of Rs95, valuing the bank at 0.8x Sep-24ABV; better than expected delivery on growth/asset quality could further drive up valuations," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.