Karur Vysya Bank Ltd.|Q2FY15 First Cut Analysis | Inline with expectations… maintain buy with target price of Rs 620…. :: IndiaNivesh

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Karur Vysya Bank’s (KVB’s) Q2FY15 results which were inline with expectation with
Net Interest income growth of 13% yoy to Rs 3.37 bn, largely inline with expectation
of Rs 3.43 bn. NIMs (calc) were inline with expectation at 2.8%, up 15 bps yoy. Loan
growth was at 12% yoy to Rs 351 bn, Deposits growth was lower at 3% yoy to
Rs 448 bn.
Non interest income growth was higher at 28% yoy to Rs 1.4 bn (vs our expectation
of 22% yoy growth). As expected operating expense grew by 8% yoy to Rs 2.6 bn
mainly due to lower employee related expense. We will try to get more clarity on
this from management in results concall. Operating profit growth was higher than
Net interest income growth (which was inline with our expectation) of 32% yoy to
Rs 2 bn. Higher operating profit growth was led by 1) Higher other income growth
and 2) control over operating expense).
Net profit was inline with expectation at Rs 905 mn vs our expectation of Rs 913
mn. Provisioning expense was at Rs 931 mn, down 21% yoy. Tax expense was at Rs
235 mn vs tax write back of Rs 446 mn.
Asset quality was stable sequentially with Gross / Net NPA of 1.35% / 0.59% to
Rs 4.8 bn / 2 bn respectively vs 1.3% / 0.53% respectively. Provision coverage ratio
remains healthy at 75% for Q2FY15. In Q2FY15, the bank has sold assets to ARC of
Rs 106 mn. We will try to get more update on this from management.
Valuation:
KVB’s Q2FY15 results were inline with expectation with stable margins, healthy
growth in operating income and pick up in other income along with stable asset
quality. We believe KVB performance is likely to improve gradually with stable
margins and return profile. At CMP of Rs 550, stock is trading at P/ABV of 1.7x and
1.6x for FY15E and FY16E respectively. As of now we maintain BUY rating with target
price of Rs 620. However we will revise our estimates and target price post
conference call with the management.

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