Karur Vysya Bank - Reassuring Performance - Karvy

In Q2FY13, Karur Vysya Bank's (KVB) PAT was in-line with our estimate, growing at 17.2% YoY (down 9% QoQ) to Rs1.3 bn. Pre provision profits grew 23% YoY to Rs1.9 bn (down 4% QoQ). The bank's asset quality continued to demonstrate strength as gross NPA and net NPA declined 14.4% and 13% sequentially. NIM improved 24 bps QoQ to 3.06% as yields improved and cost of deposit declined sequentially.

- Loan growth continues momentum: Advances grew at 27% YoY (up 4.4% QoQ), while deposits grew at 23.3% YoY (up 1.3% QoQ). Consequently, C-D ratio increased 30 bps sequentially to 79.3%.

- Asset quality improves: KVB's asset quality improved as fresh slippages were contained to Rs613 mn (delinquency ratio of 95bps). Its gross NPA ratio declined 27bps QoQ to 1.26% and net NPA ratio declined 6bps QoQ to 0.32%. The bank restructured loans worth Rs600 mn taking the outstanding amount to Rs7.1 bn (2.8% of gross advances). Credit cost was negative as there was a write back of Rs310 mn compared to NPA provisions made worth Rs324 mn in Q1FY13 and Rs 80 mn in Q2FY12.

- NIM shows an uptick: NIMs improved by 24bps sequentially to 3.06% as yield on advances improved 7 bps to 12.91%, this was well supported by decline in cost of deposits by 25bps to 8.34%. The management has guided for NIM of marginally above 3% in FY13%

Outlook & Valuation

Qualitatively, KVB's performed well as asset quality improved further, and growth momentum continued. At the CMP, the stock is trading at 6.5x and 5.4x FY13E and FY14E earnings respectively, while the ABV is trading at 1.6x and 1.4x FY13E and FY14E respectively. We have marginally upgraded FY14 earnings by 5% owing to improving asset quality and have increased the price target by 7% to Rs535 valuing the stock at 1.6x FY14E Adj. BV and continue to maintain BUY on the stock.

Source : Equity Bulls

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