Karnataka Bank - Core Under Pressure; Sale to ARCs Aids Asset Quality; Result Update Q3FY15 ::Edelweiss

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Sizzling Stocks :: Business Line

KARNATAKA BANK Margins stable; NPL’s moderate :: Edelweiss

Karnataka Bank’s (KBL) PAT moderated to INR801mn (up only 11% YoY)
in Q3FY13, largely due to increased tax expense, higher provisioning for
standard restructured accounts (INR90mn, as RBI raised requirement)
and proactive provisioning for second wage revision (INR90mn).
Headline asset quality numbers of GNPA/NNPA came in at 3.30%/2.19%
(vis‐à‐vis 3.22%/2.08% in Q2FY13). Margin dipped a tad to 2.36% on
25bps base rate cut in Q3FY13. We expect the bank’s NIMs to rise going
forward due to improving CD ratio and reducing shortfall on PSL book and
RoA to remain around 0.9%. Maintain ‘BUY’ with target price of INR180.
Slippages moderate
KBL’s Q3FY13 headline asset quality numbers of GNPA/NNPA came in at 3.30%/2.19%
(3.22%/2.08% in Q2FY13). Slippages moderated to INR864mn (1.5% vis‐à‐vis run rate of
2.2%). Both slippages (largest account being INR200mn and ~INR120mn in steel
industry) and recoveries/upgrades were granular in nature. Restructuring during the
quarter came in at INR911mn, taking outstanding restructured book to INR15bn
(6.5%). Management is confident of improvement in asset quality—gaining traction in
upgrades/recoveries over coming quarters as it expects three‐four large accounts
currently with CDR to be approved going forward, sale of some assets to ARCIL (being
finalised) and higher auctions from SARFESI. KBL has guided for GNPA to be contained
at 2.50‐2.75% in FY13. We are building in credit cost of 80bps over FY13‐14E.
Tax expense not an aberration
Higher tax expenses during the quarter (31% vis‐a‐vis run rate of 20%) dented KBL’s
bottom line. However, management believes this is the normal tax rate and the lower
rate in previous quarters was on account of higher write‐offs. Going forward, with not
much left to write‐off, the bank believes the tax rate will be at the current level.
Outlook and valuations: Margin to improve; maintain ‘BUY’
Improvement in asset quality, led by sharp recoveries and aggressive write‐offs, and
margin will drive re‐rating from the current level of 1.0x FY14E P/ABV for RoA of 0.9%
and RoE of ~13‐14% (yet to leverage the recently raised capital fully). We maintain
‘BUY/Sector Outperformer’.

Karnataka Bank -BUY Target 135::, anand rathi,

BUY Target 135
Investment Rationale
~ All-India operations
~ CASA share maintained at 24%
~ Improving the CD ratio
~ Concentrating on ‘other income’
~ Improving productivity ratios
~ Robust performance
~ Likely takeover candidate
The Business
Incorporated in 1924, Karnataka Bank is one of the oldest private
sector banks. It has 87 years of banking history.
It offers a wide variety of corporate and retail banking products
and services to over 5.8 million customers.
It made a foray into general insurance as a JV partner in Universal
Sompo General Insurance Company.
On December 31, 2011, the bank had a network of 500 branches
and 306 ATMs in 319 locations in India. It has an all-India
footprint, with 808 outlets and 10 regional offices. It has recently
been expanding its operations in North India. Some of its
strongest operations are in South of India. It has full 100% core
banking system.

Technicals: Bank of Baroda, Piramal Glass, Everest Industries, Karnataka Bank, Hatsun Agro, CORE Education, Godrej Consumer, ::Business Line

Could you please advise on short- and long-term view of Godrej Consumer Products and CORE Education and Technologies? Is it right time to buy these stocks?

Vishal

Godrej Consumer Products (Rs 554.9): Godrej Consumer Products is in a multi-year bull run. The stock recorded the high of Rs 601 in June and is currently trading close to this peak. The long-term trend in the stock is up. It has strong support in the region between Rs 370 and Rs 406. Long-term investors can hold the stock as long as it trades above this band.

Break below Rs 370 will drag the stock to Rs 346 or Rs 289. Long-term target on a strong break above Rs 600 is Rs 755.

Short-term supports for the stock are at Rs 480 and Rs 458. Investors with greater risk appetite can use declines to these levels to accumulate the stock with stop at Rs 455.

Buy Karnataka Bank 3QFY11 – Lower estimate, price target; Anand Rathi

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Karnataka Bank
3QFY11 – Lower estimate, price target; re-iterate Buy
We lower our FY11e/FY12e EPS 7%/6.7% for Karnataka Bank
due to higher NPA provisioning. We value the stock at 1.4x
FY12e ABV (earlier 1.45x) owing to lower RoE, and reduce our
target price to `206 from `223. We retain our Buy
recommendation as we expect the bank’s improving margin,
higher fee income potential and better productivity to drive RoE
expansion to 15.3% in FY13e from 9.9% in FY10.

Karnataka Bank Ltd BUY - Target Price (Rs.) 190: Greshma

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Karnataka Bank Ltd BUY
Horizon -12 – 15 months
Target Price (Rs.) - 190
Upside -18%

Executive Summary The Karnataka Bank Ltd. provides personal and business banking products and services in India. The company offers current and savings accounts, cash certificates, fixed deposits, cumulative deposits, insurance linked savings bank deposits, and resident foreign currency accounts. It also offers education loans, industrial finance, insurance services and MSME loans. As of March 31, 2010, it had 464 branches, 217 ATM outlets, 8 regional offices and 1 international division.