Karur Vysya Bank Ltd.|Visit Note | Outlook remains positive. maintain buy with target price of Rs 620.:: IndiaNivesh

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--> Karur Vysya Bank Management meet note
Outlook remains positive… maintain BUY with target price of
Rs 620…
We met management of Karur Vysya Bank (KVB) and came out with following
updates – 1) Loan growth likely to pick up in H2FY15 largely led by SME and retail,
2) NIMs to improve by 10-20 bps by FY16E with marginal improvement coming in
FY15E which will be led by reprising of liabilities at comparatively lower rates and
benefit of capital raised via QIP and 3) Asset quality likely to stabilize as most of
the restructuring of stressed accounts are already done. We continue to maintain
BUY rating on KVB with target price of Rs 620.
Key highlights:
Loan growth likely to pick up in H2FY15, focus on retail and SME to
continue:
Loan growth for KVB is likely to pick up in H2FY15 with mid to high teen growth for
FY15. Further focus on retail and SME to continue as this segment continue to do
well for bank. Retail segment now constitute 13% to loan book as against 8% in
FY12. Corporate book now constitute 37% as against 42% in FY12. Bank continues
to remain selective in corporate segment specifically in infra and infra related
industry. Gold loan is likely to remain at current level of 22%. While management
remain confident of growth to remain higher in FY16, we are not increasing our
loan book assumption and keep it unchanged at 13.5% CAGR for FY14-16E.
Loan Book (bn) FY12 FY13 FY14 Q1FY15 Q2FY15
Retail 19.8 35.4 42.8 44.0 46.2
% of total 8.2 11.9 12.5 12.7 13.0
Agri 38.1 54.4 60.6 64.1 62.5
% of total 15.7 18.3 17.7 18.5 17.6
Commercial 82.3 96.0 111.2 112.6 114.4
% of total 34.0 32.3 32.5 32.5 32.2
Corporate 101.9 111.7 127.7 125.8 132.1
% of total 42.1 37.6 37.3 36.3 37.2
Total 242.1 297.1 342.3 346.6 355.2
Source: Company, IndiaNivesh Research
Operating expense growth to stabilize at current level, targeting cost
to income ratio of ~45% in 2 to 3 years:
Bank is focusing on improving the cost to income ratio to ~45% over next 2 to 3
years from current level of 56%. While operating expense growth has stabilized in
last 2 quarters with growth of 8-11% yoy, cost to income ratio continues to show
the higher number mainly due to both lower net interest income and non interest
income growth. We believe cost to income ratio is likely to improve gradually to
53% by FY16E as 1) bank has not planned any significant hiring as of now and branch
expansion is also not significant and 2) NII growth (on back of lower slippages) and
Non interest income growth is likely to pick up.

LINK
http://www.indianivesh.in/Admin/Upload/635519816249237500_Karur%20Vysya%20Bank_Visit%20Note_18112014.pdf