Karur Vysya Bank: Robust asset quality
(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.