Accumulate Karur Vysya Bank - Dolat Capital

Core interest income, operating profit and net profit in-line with our estimates supported by stable margin and asset quality

In Q3 FY12, Karur Vysya Bank's (KVB) net interest income (NII) grew 11.4% YoY to Rs. 2.3bn, slightly lesser than our estimates of Rs. 2.4bn. KVB's margin remains stable at 3.06% against 3.03% in Q2FY12. KVB's operating profit was at Rs. 1.89bn compared to our estimates of Rs. 1.93bn. Net profit grew 10.3% YoY to Rs. 1.25bn (Dolat est: Rs. 1.21bn, Consensus est: Rs. 1.22bn).

The bank's core operation remains marginally better, contained liability cost aided margin and it maintained its consistency in fee income growth.

Asset quality remained healthy with flat gross NPAs at 1.45% and reasonably high PCR at 80%. The bank's asset quality remains under control and management is confident of maintaining gross NPA at current level of Rs. 3bn by the end-march'12. Overall result is in-line with stable margin and asset quality.

We expect KVB's total business to grow by 31% CAGR on the back of 30.4% growth in deposits mobilization and 31.9% expansion in credit book. We estimate margin to drift down by 30bps to 2.86% in FY12 and subsequently by 12bps to 2.74% in FY13. In FY12-13, the bank would report RoAA and RoAE in a range of 1.3%-1.5% and around 18-20% respectively.

We revise upward our FY12 and FY13 earnings estimates by 11% and 9% respectively considering higher business growth and improvement in margin and asset quality. We increase our target price by 5% to Rs. 434 at 1.8x adjusted book value (ABV) FY13 and reiterate the stock rating as Accumulate.

Source : Equity Bulls

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