Earnings Update - Karur Vysya Bank (KVB IN) - Growth in loan book picks-up; margin surprises positively - CSEC Research

Growth in loan book picks-up; margin surprises positively

- KVB's advances showed a sluggish growth of 5%YoY to INR 414bn for FY17. However, the loan book saw a sequential pick-up, as advances grew by 7.7% largely driven by demand in segments like Commercial segment (13.6%YoY, 11.3%QoQ). The loan mix was noted at Corporate - 32.9%, Commercial - 35%, Agriculture - 16.8% & Retail-15.3%.

- Management highlighted that the slowdown in loan growth was on account of repayment witnessed in corporate segment & impact of demonetization which halted the credit demand. Going forward the management has guided to grow the loan book at 15-18% in FY18 driven by focus on Retail/ SME & Agri segment.

- Deposits registered a stable growth (7.2%YoY, -2.5%QoQ) to INR 537bn, driven by CASA deposits (27.5%YoY, -12.3%QoQ). However, on a sequential basis, CASA deposits witnessed redemption of funds. CASA ratio stands improved to 27.7% vs. 23.3% in 3QFY17.

- NII grew steadily by 22.7%YoY to INR 5.8bn lead by lower interest expense (-4.9%YoY) on account of fall in cost of funds. Increase in share of CASA aided NIM expansion as it increased by 49bps YoY to 4.04% amidst drop in cost of funds by 85bps YoY to 6.03% and Yield on advances decreased by 8bps YoY to 11.23%.

Valuation: The stock is currently trading at 1.2x P/BV of FY19E. Considering the positive commentary of management on loan growth and positive surprise on margin paints a positive picture for the bank. Though the weakening asset quality remains a cause of concern, the management sounds confident of improving the same going forward. We maintain our rating of MARKETPERFORMER with a target price of INR 123, assigning a P/BV of 1.3 FY19E.

Risks: Slower than expected loan growth, increase in slippages might impact earnings.

Shares of KARUR VYSYA BANK LTD. was last trading in BSE at Rs.117.75 as compared to the previous close of Rs. 117.9. The total number of shares traded during the day was 45975 in over 661 trades.

The stock hit an intraday high of Rs. 118.8 and intraday low of 117. The net turnover during the day was Rs. 5425393.

Source : Equity Bulls

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