Karur Vysya Bank- Target Price: ` 512 Buy ::Dolat

In FY12, Karur Vysya Bank (KVB) reported healthy performance even in
on-going turbulent times on the back of healthy margin of 2.9% and robust
growth in fee income. Followings are key observations in KVB’s annual
report
􀁺 KVB’s management key focus area in FY13: The bank’s management
indicated that the major thrust areas for FY13 would be improvement in CASA
ratio, improvement in asset quality and recoveries of NPAs, further broadening
of fee income and increasing footprints to have a better pan India coverage

��


􀁺 Branch expansion gains momentum: In the past four years, the bank
opened 25 branches on an average each year; whereas in FY12, it added
highest number of branches (81new branches and up-gradation of a satellite
branch into a full fledged branch), taking the total to 451
􀁺 Competition for low-cost deposit: KVB’s CASA deposit share came down
to 19.2% in FY12 from 23.3% in FY11 on account of moderation in low-cost
deposit mobilization mainly due to lesser liquidity in the system and
competition from new-generation banks
􀁺 Well-diversified credit growth: KVB maintained its secured loan book
proportion in the range of 89-93% since last four years. On an industry-wise
credit book break-up, KVB’s loan book is mainly exposed to infrastructure,
textile, iron & steel, food processing and chemical industries. The bank’s
exposure to these industries has been coming down over time barring in iron
& steel
􀁺 Efficient asset-liability management resulting into faster re-pricing:
On maturity profile front, as on end-March’ 12, up to 53% of KVB’s deposits
and 43% of advances would redeem/mature in a one-year time horizon,
compared to 46% of deposits and 39% of advances as on end-FY11
􀁺 Stress on margin: In FY12, KVB reported 28bps YoY decline in margin to
2.87%, on higher allocation of assets towards secured loans (low yielding &
non risky assets), decline in low cost deposits share and higher cost of
deposits
􀁺 Strain on asset quality: KVB’s gross slippages ratio increased sharply to
0.82% from 0.34% in FY11. Total gross slippages rose to ` 1.74bn from `
536mn in FY11. On the restructured loan book front, higher additions of `
3.3bn resulted in 27% YoY jump in the total restructured loan book to `
6.6bn as on end-FY12
􀁺 Adequately capitalized: As on end-March’12, KVB had tier I and CAR of
13.1% and 14.3% respectively. We do not expect the bank to come out with
any equity raising plan by end-FY13
Overall, we maintain our positive stance on the stock and estimate that the
bank would report RoAA and RoAE in the 1.2-1.3% and 18-20% ranges
respectively in FY13-14. We reiterate Buy rating on the stock with a target price
of ` 512. At current price, it quotes at 1.5x and 1.3x ABV FY13 and FY14
respectively; based on our target price, the stock would trade at 1.6x adjusted
book value FY14.