Stocks To Buy: Emkay Global Bullish On 2 Mid Cap Banking Stocks, Sees Gains Upto 35% In 12 Months

Karur Vysya Bank (KVB)

Karur Vysya bank is a 100 years old bank headquartered in Karur, Tamil Nadu. With a market cap of Rs 7,404.87 per share, it is a mid-cap bank.

Brokerage retains the buy call on KVB with a revised target price of Rs 125 per share. According to the given target price, the stock is likely to surge 35% from its current level.

On the NSE, its Current Market Price (CMP) stood at Rs 92.55 per share, up 1.26% from its previous close.  Its 52 week high level is Rs 101.70 and the 52 week low is Rs 41.75, respectively.

The shares in the past 1 week fell by 0.22%, whereas, in the past 1 month shares surged by 9.79%. The stock has given massive 67.21% positive returns in the past 3 months. It has given 83.09% positive returns in 1 year and 67.06% positive returns in 3 years, respectively In terms of return. However, in the past 5 years, it has given 18.65% negative returns. 

Karur Vysya Bank - Brokerage's comments

KVB reported a strong beat on PAT at Rs2.5bn (vs our est of Rs2.3bn), mainly led by strong growth/margins, higher other income and contained opex, albeit partly offset by higher w-offs (as a strategy) to derive tax benefit and run down NPAs. Bank clocked ~1.2% RoA and guides for >1.2% exit RoA in FY23.

Overall credit growth was robust at 17% YoY/4.5% QoQ, led by strong traction in commercial, retail and agri loans. This, coupled with asset re-pricing and lower stress formation, led to margin expansion of 25bps QoQ to 4.1%. Bank guides for sustained double-digit credit growth and >3.8% NIM in FY23. 

Bank's business transformational journey, which started during the erstwhile MD's tenure, has been further accelerated by the current management engaging in lateral hiring from large private banks, for strengthening the liability/asset business. Bank has also partnered with Fintechs, to plug operational and outreach gaps on the liability/asset front. "We believe this could keep opex elevated, but would bring sustainability to its RoA, unlike in the past," the brokerage has said. 

It added, "Factoring-in better than expected growth, margin trajectory and asset-quality outcomes, we upgrade our earnings for FY23-25E by 5-13% and expect RoA/RoE at a high of 1.3%/15% in FY25E, seen only prior to 2013. Thus, we upgrade our P/ABV to 1.0x from 0.8x, we retain Buy on the stock with revised TP to Rs125/share (vs Rs95)."

RBL Bank

RBL Bank is a leading private-sector bank in India. It is a mid-cap bank having a market cap of Rs 7,422 crore. The brokerage has given a buy call with a target price of Rs 160 per share. With the given target price, the stock is likely to give a 10% return in 12 months. 

The stock on NSE last traded at Rs 123.80 per share, 2.75% down as compared to its previous close of Rs 127.30 per share. Its 52-week low level is Rs 74.15 and its 52-week high is Rs 221.30, respectively. The stock has given negative returns on long-term investments.

The stock in the past 1 week has fallen 4,29%, giving a negative return, However, in the past 1 and 3 months, it has given 0.65% and 30.73% positive returns, respectively. In the past 1 year, it has given 39.7% negative returns. In the past 3 and 5 years, it has given 52.45% and 76.39% negative returns, respectively.

RBL Bank - Brokerage's comments

According to the brokerage, for Q2FY23, RBL Bank reported a slight miss in PAT at Rs2bn (vs. est.: Rs2.2bn). This was mainly on account of higher staff cost, which in turn was led by delayed increments/payouts and some front-loading of provisions. Despite higher slippages (mainly from the restructured pool), GNPA ratio improved by 28bps qoq to 3.8% due to higher recoveries/w-offs and is expected to continue going forward. 

Credit growth during the quarter improved to 12% yoy/4% qoq because of improving traction in retail/SME. MFI AUM improved for the first time after a gap of five quarters, as disbursements picked up. Management expects growth to improve in H2 and has guided for 15% growth in FY23, post which it should improve to ~20%, led by acceleration in new product lines. Deposit growth is also expected to accelerate, led by improvement in branch productivity and cross-selling. 

The bank has guided for continued healthy margin trajectory as growth improves, while it will continue to invest in branches, technology, and new products, which shall keep operating profit growth in check. However, improving asset quality and, in turn, lower LLP should drive up the bank's RoA to 0.8-1.2%/RoE to 7-12% over FY22-25E from a loss in FY22. 

"We believe the new MD's strategy on prioritizing management stability, accelerating profitable growth, and NPA recoveries is comforting. The bank's regulatory compliance should also improve and, thus, reduce the risk of regulatory friction. With improving growth/RoE visibility, we upgrade our TP to Rs160 (earlier Rs125), based on 0.6x Sep-24 ABV. We retain our Buy rating on the stock," the brokerage has said.

Disclaimer

The stocks have 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.