Karur Vysya Bank: Ro­bust as­set qual­ity

Money Times - - Stock Buzz/Expert Eye - By Subra­ma­nian Ma­hade­van

(BSE Code: 590003) (CMP: Rs.75.05) (FV: Rs.2)

KarurVysya Bank (KVB) is a mid-sized bank in the pri­vate sec­tor space that op­er­ates through a net­work of 790+ branches with 2,300+ ATMs and cash re­cy­clers. 82% of its busi­ness is con­cen­trated in South In­dia with ~73% of its branch foot­print in Tamil Nadu and Andhra Pradesh. As at Q1FY19, its to­tal busi­ness was Rs.1029 bil­lion. The bank is cap­i­tal­ized with a to­tal CAR (cap­i­tal ad­e­quacy ra­tio) of 14.4% (Basel-III). Gross NPAs were re­ported at 6.56% with pro­vi­sion cov­er­age ra­tio (PCR) of 56.5%.

The bank has a di­ver­si­fied loan book and is work­ing to­wards in­creas­ing the share of its gran­u­lar ex­po­sure through adop­tion of tech­nol­ogy. It is con­sciously re­duc­ing the av­er­age ticket size of its cor­po­rate as well as com­mer­cial bank­ing ex­po­sure. In­ter­nal risk man­age­ment is be­ing strength­ened to im­prove the qual­ity of its port­fo­lio. It is fo­cused on risk ad­justed growth and it ex­pects a near-term growth in the mid-teens.

The new CEO (ex- Citi banker) is fo­cused on new hires, tech­nol­ogy im­ple­men­ta­tion and risk man­age­ment to give the in­sti­tu­tion a more ag­ile and mod­ern look. As­set qual­ity is­sues might linger for a cou­ple of quar­ters but these is­sues are near­ing an end. Given that the bank is well cap­i­tal­ized, it can strengthen its pres­ence in the seg­ments where PSU banks are giv­ing up mar­ket share.

The stock trades at at­trac­tive val­u­a­tions of 1.1x FY19 book and 1.4x FY20 ad­justed book. In­vestors can ac­cu­mu­late the stock for at least 50% re­turns in the next two years. After the steep cor­rec­tion wit­nessed in the NBFC space, the stock is ripe for se­ri­ous long-term in­vestors.


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