ICICI Securities Upgrades Banking Stock To Buy, Sees 39% Gains, Board Recommends 100% Dividend

ICICI Securities initiates Buy call on Karur Vysya Bank with a target price of Rs. 145/share. According to the given target price, the stock is likely to give a decent return of 39% if purchased at the current market price. The Board in their meeting held on 15 May 2023, recommended a dividend of Rs 2 per equity share on the face value of Rs 2 each i.e. 100%.

Recommends Dividend

"Board of Directors of the Bank at its meeting held today, i.e., May 15, 2023, recommended dividend of Rs. 2.00 per equity share on the face value Rs. 2/- each (i.e., 100 %) for the financial year ended 31st March 2023, subject to the approval of the shareholders at the ensuing Annual General Meeting (AGM) of the Bank," Karur Vysya Bank said in an exchange filing.

Strong quarter; moderating credit costs to sustain rising RoA trajectory

According to ICICI Securities, Driven by healthy 'other income', Karur Vysya Bank (KVB) reported strong Q4FY23 PAT at Rs3.38bn with 1.5% annualised RoA. NIMs were stable QoQ at 4.37% and asset quality remained strong with miniscule net slippages and further reduction in net NPAs. Bank has prudently utilised the lumpy TWO recoveries towards shoring-up PCR on the RSA book, suggesting superior earnings quality.

The brokerage said, "We like KVB for: 1) the edge it has in cost of deposits over peers, 2) balanced loanbook and broad-based growth, 3) amongst lowest SMA 1+2 book across peers, 4) strong tier-1 capital, and 5) superior return ratios. In line with our view of peaking NIMs, we are modelling moderation in the same parameter for KVB. After a broadly stagnant employee count for past >5 years, the bank intends to hire aggressively. This would undoubtedly lead to higher 'cost to income' (C/I) ratio (captured in our estimates), but would also improve franchise strength, in our view. Despite a sharp rise in C/I ratio, we believe the rising RoA trajectory would sustain, aided by sharp moderation in credit costs."

It added, "KVB has already done heavylifting with net NPAs now at 20% PCR on RSA and 100% PCR on SR, while it continues to have amongst the lowest SMA 1+2 books across peers. Overall, there is strong visibility of 1.4-1.5% RoA and >15% RoE for FY24E-FY25E driven by the sharp delta in credit cost. Upgrade to BUY (earlier: Add) with a revised target price of Rs145 (earlier: Rs120), valuing the stock at 1.1x FY25E ABV (1.2x FY24E ABV)."

Stock Outlook

The stock's current market price (CMP) is Rs. 105.05/share, up by Rs 7.40 or 7.58% from its previous close of Rs. 97.65/share. The stock hit the 52 week high at Rs. 116.20/share and 52-week low at Rs. 41.75/share, respectively.

The stock jumped 10.23% in the past 1 week, and 7.58% in the past 1 month, respectively. The stock has given 142.61% positive return in the past 1 year. It has given 343.25% positive return in the past 3 years. It surged 16.19% in the past 5 years.

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