Buy stocks of Karur Vysya Bank; target of Rs 512

Karur Vysya Ban:-

“In FY12, Karur Vysya Bank (KVB) reported healthy performance even in on-going turbulent times on the back of healthy margin of 2.9% and robust growth in fee income. Followings are key observations in KVB’s annual report.”

“The bank’s management indicated that the major thrust areas for FY13 would be improvement in CASA ratio, improvement in asset quality and recoveries of NPAs, further broadening of fee income and increasing footprints to have a better pan India coverage. In the past four years, the bank opened 25 branches on an average each year; whereas in FY12, it added highest number of branches (81new branches and up-gradation of a satellite branch into a full fledged branch), taking the total to 451 KVB’s CASA deposit share came down to 19.2% in FY12 from 23.3% in FY11 on account of moderation in low-cost deposit mobilization mainly due to lesser liquidity in the system and competition from new-generation banks.”

“KVB maintained its secured loan book proportion in the range of 89-93% since last four years. On an industry-wise credit book break-up, KVB’s loan book is mainly exposed to infrastructure, textile, iron & steel, food processing and chemical industries. The bank’s exposure to these industries has been coming down over time barring in iron & steel On maturity profile front, as on end-March’ 12, up to 53% of KVB’s deposits and 43% of advances would redeem/mature in a one-year time horizon, compared to 46% of deposits and 39% of advances as on end-FY11. In FY12, KVB reported 28bps YoY decline in margin to 2.87%, on higher allocation of assets towards secured loans (low yielding & non risky assets), decline in low cost deposits share and higher cost of deposits.”

“Overall, we maintain our positive stance on the stock and estimate that the bank would report RoAA and RoAE in the 1.2-1.3% and 18-20% ranges respectively in FY13-14. We reiterate Buy rating on the stock with a target price of ` 512. At current price, it quotes at 1.5x and 1.3x ABV FY13 and FY14 respectively; based on our target price, the stock would trade at 1.6x adjusted book value FY14,” says Dolat Capital research report.