Karur Vysya Bank shares: The brokerage hasn’t changed its recommendation to buy the multibagger stock, but it has changed the goal price from Rs. 155 to Rs. 165. Emkay Global’s top picks in the small cap banking space include shares of Karur Vysya Bank Ltd, which have gained a lot of value. The brokerage still recommends buying the stock, but now the goal price is Rs 165 instead of Rs 155. That’s an increase of 29.46% from the last close, which was Rs 127.75, and a rise of 45% from the market price on June 13, 2023, which was Rs 113.90.The advice was given on June 13.
At the end of the March 2023 quarter, the late investor Rakesh Jhunjhunwala was listed as a shareholder with a 1.85% stake, or 1.48 crore shares.Shareholding data from the last quarter shows that his wife, Rekha Jhunjhunwala, owned 2.89% of the company, or 2.31 crore shares. In the previous session, the banking stock hit a 52-week high of Rs 129.85, which was a 9.03% rise on BSE.
It began trading at Rs 119.30, which was higher than the previous close of Rs 119.10. The stock of Karur Vysya Bank ended the day up 7.01 percent, at Rs 127.45. The share has gone up 130% since the beginning of this year and 183% in the last year. In three years, the stock price has gone up by 394%.
The multibagger stock has gone up by 30.7% in one month and by 16.4% in one week. On BSE, 14.02 lakh shares of the company changed hands, which brought in Rs 17.29 crore. The bank’s market capitalization went up to Rs 10,197 crore. The stock hit a 52-week low on June 20, 2022, when it was worth Rs 43.05.
In terms of technicals, the stock’s relative strength index (RSI) is 86.9, which means it’s in the “overbought” zone. The beta of the banking stocks is 1.1, which means that they will be very volatile in a year. Shares of Karur Vysya Bank are better than their 5, 20, 50, 100, and 200-day moving averages.
For the quarter ending in March 2023, the private sector lender posted a net profit of Rs 338 crore, up from Rs 214 crore for the same quarter in the previous fiscal year. Net interest income (NII) went up by 25.7% from Rs 710 crore to Rs 892.6 crore year-over-year (YoY). In Q4, total income went up from Rs 1,615 crore to Rs 2,169 crore.
The board of directors suggested a dividend of Rs 2 per equity share with a face value of Rs 2 for the financial year that finished on March 31, 2023, if the shareholders agreed. Here are the four events that Emkay Global says can push the stock to Rs 165.
The plan for growth will be based on a good risk-reward ratio
Karur Vysya Bank is finally on the path to growth. From FY15 to FY22, the bank’s corporate de-bulking plan, the resignation of the MD, and problems caused by Covid caused credit growth to be less than 10%. Asset quality problems are mostly over, so the bank has seen a 16% YoY net credit growth. For FY24, the bank predicts a slightly lower number because it thinks it’s best to slowly speed up growth during market shifts to avoid accidents. Within retail, the bank would continue to focus on building its mortgages/LAP portfolio while also increasing its retail gold portfolio. The bank stopped giving out personal loans in FY23, but it plans to build a strong MFI business over time. At first, the BC model will drive MFI growth while the bank builds its team and processes. Once the bank feels confident about the risk-reward balance, it will speed up growth.
Healthy earnings and controlled cost ratios will help keep the business’s core profitable.
The bank has a good CASA ratio of 33%, but it wants to slowly raise it to 40% over time. It plans to do this with a mix of real and digital strategies, which will help it keep its healthy NIMs (>3.8-4%).After a long time, the bank has chosen to open 35 branches in FY24, and it plans to build a strong CASA base after that. According to the bank, a cluster-based strategy would enable it to expand both its CASA base and MSME asset book. The bank wants to keep the cost-income ratio at 45–50%, which is below its usual range of 53–60%. This will help Karur Vysya Bank’s core return on assets stay between 2.4% and 2.6% over FY24–26E.
Lower slippages and a healthy PCR will help minimise LLP.
The bank has said that it expects slippages to stay under 1% for FY24. This, along with better recoveries and write-offs, should lead to a steady drop in gross non-performing assets to below 2%. The number of loans in the SMA2 book is only 0.2%, and the number of loans in the RSA book has also gone down, to 1.5%, with a low chance of return. The bank has a good PCR of 68% (a technical PCR of 92%), and it expects LLP to be 75bps in FY24, down from 150bps in FY23. We have built up a slightly higher PCR (70%) and, as a result, an LLP of 1%, which takes into account the additional macro dislocation and the Bank’s plan to create a cushion.
Even though the price has gone up, KVB is still a good buy because it is priced well.
Karur Vysya Bank is on track to reclaim the best RoA/RoE among peers, at 1.5%/15-16% over FY24-26E, on a sustainable basis, thanks to better quality growth, NIMs/fees, and a controlled LLP. This is because asset quality stress and worries about management stability and credibility are now mostly in the past. This makes Karur Vysya Bank one of the top choices among small-cap banks, together with the strong capital ratio (CET1:16.8%) and alluring value (0.8xFY25E ABV). We still say “BUY,” but now our target price is Rs. 165 per share instead of Rs. 155, putting the bank’s value at 1.2x FY25EABV.
