With asset quality stress and concerns around management stability/credibility now largely behind, Karur Vysya Bank (KVB) is on course to regain its mojo led by accelerated growth and reclaiming the >1% RoA (return on assets), as per brokerage Emkay.
Karur Vysya Bank is the most appealing ‘Buy’ among smallcap banks, according to Emkay, because it has the best capital position (Tier I >17%) among peers and reasonable prices despite the recent run-up.
Based on a 4-5% increase in earnings for FY23-25E owing to stronger growth/lower LLP and rolling over valuations due to better RoE, the brokerage firm has raised its target price for the bank stock to $95 per share from $78 per share, representing a 40% increase from the current stock level. However, the brokerage believes that the primary risks include a slower-than-expected rate of growth and asset quality improvement as a result of adverse macroeconomic conditions.
“The bank has guided to reporting negative slippages in FY23, owing mostly to improved recovery patterns in the RAM (Retail, Agri, MSME) segment and lower corporate stress reflected in SMA 1/2, both at 0.5% of loans.” “The restructured book is also reasonable at 2.6% of loans,” according to the note.
A scheduled commercial bank headquartered in Tamil Nadu, Karur Vysya Bank shares have surged about 49% in 2022 (year-to-date or YTD) so far.