Karnataka Bank Q2FY18 Result Update - Rating - HOLD - Arihant Capital Markets

Profitability

The Karnataka Bank Ltd for the quarter ended Q2 FY18 reported fall in its net profit by 25% YoY to Rs 93 crs. Sequentially the profit de-grew by 30%. This was majorly due to higher provisions cost which increased by 73% YoY and 14% QoQ.

Advances

Bank reported muted credit growth of 12% YoY while the loan book grew by 7% sequentially to Rs 41,127 crs. Retail advances for the bank grew at 7% while corporate advances grew at 18.2% YoY. Retail advances to corporate advances ratio stood at 50 : 50. Management has guided credit growth of 15%.

Deposits

Deposits for the bank grew at robust 6.5% YoY. CASA proportion increased from 26% to 28.5% on account of higher savings bank account growth. C-D ratio for the bank increased to 72.7% against 68.9% YoY and 68.4% sequentially.

Asset Quality

Gross NPA stood at Rs 1761 cr (4.13%) while Net NPA stood at Rs 1247 crs (3.04%). Management expects asset quality to stay at tolerable levels as recoveries are expected to outpace slippages going forward. Management is confident that recoveries & slippages will improve in coming quarters. Management has reaffirmed target for Net NPA's to come down to 2% by end of this fiscal year.

Margins

Yield on advances stood at 10.2% against 11% YoY. Cost of deposits dropped to 6.2% against 6.9% YoY. NIM for the bank has improved to 3.03 against 2.6 YoY and 2.64 on sequentially basis. Management commented that NIM's will improve further.

Valuation

At CMP of Rs 160 the stock trades at 8.4 P/E(x) and 1.1 P/ABV(x) to its FY 19E. We have valued the stock at 1.15(x) to its FY 19E ABV and arrived at a fair value of Rs 163 for the stock. We have 'NEUTRAL' rating for the stock.

Shares of KARNATAKA BANK LTD. was last trading in BSE at Rs.156.65 as compared to the previous close of Rs. 159.4. The total number of shares traded during the day was 114889 in over 562 trades.

The stock hit an intraday high of Rs. 161 and intraday low of 156.1. The net turnover during the day was Rs. 18137359.

Source : Equity Bulls

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