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Karur Vysya bank (KVB IN) - Moderate loan growth, coupled with deteriorating asset quality - CSEC Research

Posted On: 2017-11-19 09:09:27

KVB's advances showed a moderate growth of 11.9% YoY(4.3% QoQ) to INR 442bn in 2QFY18. Growth in loan book was contributed by segments like Commercial (13.1%YoY) and Retail (12.0%YoY). The loan mix was noted at Corporate - 32.8%, Commercial- 34%, Agriculture- 17.6% & Retail-15.6%. Going forward the management has guided to grow the loan book at ~15% in FY18 driven by focus on Retail/ SME & Agri segment.

Deposits registered a stable growth (8.5%YoY, 3.2%QoQ) to INR 564bn, driven by growth in CASA deposits. CASA deposits grew strongly by 20.1%YoY, taking CASA ratio to 27.6% vs. 24.9% in 2QFY17. However, on a sequential basis, CASA de-grew by 2.3%, lead by 8% QoQ decline in demand (current account) deposits.

NII grew steadily by 12.1% YoY(3.1% QoQ) to INR 5.6bn lead by lower interest expense (de-growth of 5.6% YoY) on account of declining cost of funds. NIM improved by 20bps YoY to 3.81%. However, sequentially NIM grew marginally by 5bps from 3.76% in 1QFY18. Cost of funds dropped by 89bps YoY to 6.00% and Yield on advances decreased by 99bps YoY to 10.51%.

Valuation: The stock is currently trading at 2.1x P/BV of FY19E. Considering the expectations of the management on loan growth and uptrend on margin (YoY) paints a positive picture for the bank. Though the weakening asset quality remains a cause of concern, the management sounds confident of improving the same going forward. We maintain our rating of MARKETPERFORMER with a revised target price of INR 110, assigning a P/BV of 1.9X FY19E.

Risks: Slower than expected loan growth, increase in slippages might impact earnings.

Shares of KARUR VYSYA BANK LTD. was last trading in BSE at Rs.120.4 as compared to the previous close of Rs. 118.05. The total number of shares traded during the day was 94863 in over 810 trades.

The stock hit an intraday high of Rs. 121.5 and intraday low of 119.05. The net turnover during the day was Rs. 11455371.

Source: Equity Bulls

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