Reassuring Performance
In Q2FY13, Karur Vysya Bank’s (KVB) PAT was in‐line with our estimate,
growing at 17.2% YoY (down 9% QoQ) to Rs1.3 bn. Pre provision profits
grew 23% YoY to Rs1.9 bn (down 4% QoQ). The bank’s asset quality
continued to demonstrate strength as gross NPA and net NPA declined
14.4% and 13% sequentially. NIM improved 24 bps QoQ to 3.06% as yields
improved and cost of deposit declined sequentially.
Loan growth continues momentum: Advances grew at 27% YoY (up
4.4% QoQ), while deposits grew at 23.3% YoY (up 1.3% QoQ).
Consequently, C‐D ratio increased 30 bps sequentially to 79.3%.
Asset quality improves: KVB’s asset quality improved as fresh slippages
were contained to Rs613 mn (delinquency ratio of 95bps). Its gross NPA
ratio declined 27bps QoQ to 1.26% and net NPA ratio declined 6bps QoQ
to 0.32%. The bank restructured loans worth Rs600 mn taking the
outstanding amount to Rs7.1 bn (2.8% of gross advances). Credit cost
was negative as there was a write back of Rs310 mn compared to NPA
provisions made worth Rs324 mn in Q1FY13 and Rs 80 mn in Q2FY12.
NIM shows an uptick: NIMs improved by 24bps sequentially to 3.06%
as yield on advances improved 7 bps to 12.91%, this was well supported
by decline in cost of deposits by 25bps to 8.34%. The management has
guided for NIM of marginally above 3% in FY13%
Outlook & Valuation
Qualitatively, KVB’s performed well as asset quality improved further, and
growth momentum continued. At the CMP, the stock is trading at 6.5x and
5.4x FY13E and FY14E earnings respectively, while the ABV is trading at 1.6x
and 1.4x FY13E and FY14E respectively. We have marginally upgraded FY14
earnings by 5% owing to improving asset quality and have increased the
price target by 7% to Rs535 valuing the stock at 1.6x FY14E Adj. BV and
continue to maintain BUY on the stock.
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