Karur Vysya Bank Ltd. | Q3FY15 Concall Update | Better operating performance, Asset quality pain remains. maintain BUY with upwards revised target price of Rs 672. :: IndiaNivesh

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Karur Vysya Bank (KVB) reported better than expected results on all operating metrics with Net Interest income of Rs 3.9 bn, up 28% yoy (7% above expectation). This is driven by healthy NIMs of 3.1% (up 41 bps qoq) mainly because the bank has optimized the capital raised by way of QIP in Q2FY15. Operating profit was ahead of expectation at Rs 2.6 bn led by higher than expected growth in non interest income at Rs 1.5 bn and lower operating expense of Rs 2.7 bn (up 7% yoy). Despite higher provisioning expense of Rs 1.06 bn, Net profit growth was ahead of expectation at Rs 1.1 bn. Asset quality of KVB was impacted by fresh slippages of Rs 2.3 bn vs Rs 1.6 bn in Q2FY15 while fresh restructuring was lower at Rs 650 mn vs Rs 1250 mn in Q2FY15. Gross / Net NPA increased by 55 / 14 bps qoq to 1.9% / 0.7%. Healthy Provision coverage ratio of 75% continues to drive comfort. Valuation at 1.7x and 1.6x for FY16E and FY17E respectively looks reasonable. We continue to like KVB and maintain BUY rating with target price of Rs 672, rolling over multiple to FY17E ABV. Result update Retail advances drive Loan growth: Loan book of KVB was lower at 8% yoy largely led by retail advances growth of 15% yoy which was partially offset by lower growth in other segments (Agri, Commercial and Corporate). Gold loan portfolio has come down by 5% qoq to Rs 75.6 bn mainly due to lower demand and correction in gold prices. Gold loan book now constitute 21.1% of loan book as against 24.4% in Q3FY14.

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