Company Introduction: Karur Vysya Bank(KVB) Limited provides banking and financial services in India. KVB was started in the year 1916 in Karur. KVB has made profits consistently for the past 95 years of its banking operations. It has also declared uninterrupted divided since its operation.
Investment Arguments: KVB is planning to introduce 100 new branches and 400 ATMs during the current fiscal across the country. It aims to reach 540 branches pan-India by March 2013, which will be in line with the long-term goal of achieving a total business of Rs 1, 25,000 crore by 2016. KVB continues to register higher business growth (25%) than the system. At 27.2%, advances grew faster than deposits (23.3%).We expect the bank to continue to register a healthy ~26% CAGR over FY12-15, led by SME and retail loans.
Expected Value: 574 Sector: Banking
Both in terms of ROA & ROE, KVB has been most consistent player in last 10 years which shows quality of management. In last 10 years we find that it is consistently generating ROA of above 1 & ROE of over 20% (Average). KVB 10 years average ROA is 1.64% which is higher than HDFC which is another best bank, consistently generating higher ROA (average 1.46%) over 10 years period. Gross NPAs decreased 14.4% qoq, with fresh slippages of `613m (1.0% of loans). NPA coverage remained stable at +75%. In 2QFY13, restructured book grew 9.2%qoq to `7.1bn (2.8% of loans). We expect the 75% NPA coverage to be sustained over FY13-15, led by likely stable asset quality and 28.2% CAGR in pre-provisioning profits over the same period.
Valuation
At the current price of Rs. 390, the stock trades at a PABV of 1.20 xs for FY15e and 1.42x for FY14e. Our target price of Rs. 574 is based on target P/ABV of 1.45 for FY 15 ABV.
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