5x stock return in 3 years! This Jhujhunwala's banking bet has more steam left, say analysts

Brokerage firms remain positive on banking stocks, particularly the smaller private names and Karur Vysya Bank (KVB) is no exception in this list. The multibagger private lenders continue to attract analysts on the back of sound earnings, robust balance sheet and positive outlook.

Shares of Karur Vysya Bank have rallied more than 500 per cent in the last three years and analysts see another rise of 50 per cent in the counter citing its asset quality, stable maring, strong performance on return on equity (RoE) and return of assets (RoA).

Karur Vysya Bank posted a strong PAT beat yet again, of 15 per cent at Rs 340 crore, boosted by robust & stable margins at 4.4 cent, higher recovery from written-off accounts, albeit partly offset by higher provisions, including restructured loans. Asset quality continues to improve, with NNPA now down to 0.7 per cent from 2.3 cent a year ago, said Emkay Global.

"We expect KVB to deliver a healthy RoA and RoE of 1.5-1.4 per cent and 15 per cent, respectively over FY24-26E. Bank remains our top pick in the small-cap banking space, given its superior return ratios, sturdy capital ratios and Mgmt credibility," it said retaining a 'buy' call and a target price of Rs 155, suggesting an upside of about 50 per cent from its previous close at Rs 97.74.

KVB reported 55 per cent YoY earnings growth due to 70 per cent YoY operating profit growth. Loan growth was at 12 per cent annually, whereas NIM was flat sequentially. Asset quality showed improvement, with gross and net NPLs at a seven-year low. RoEs have touched 16 per cent, led by strong performance in non-interest income and healthy NIM, said Kotak Institutional Equities.

We maintain a 'buy' rating with an fair value (FV) of Rs 125," it said. "At our FV, we are valuing the bank at 1 times book and 6 times FY2025 EPS for RoEs of 14-15 per cent in the medium term." KVB is providing greater confidence to investors as a stock idea, given its consistent performance on various asset quality metrics, it added as it sees re-rating to be slower from hereon.

Shares of Karur Vysya Bank have rallied more than 500 per cent in the last three years from Rs 20.9 in April 2020. The stock has gained about 145 per cent in the last one year, while the stock has gained 10 per cent in the last one week.

KVB’s Q4 FY23 profitability improved, its RoA coming at 1.5 per cent on account of a strong operating performance. Key positives were improving asset quality, decent credit growth across segments, stable margins and strong liquidity and capitalisation. With credit growth expected to be in the mid-teens and moderating credit costs, earnings are expected to be strong, said Anand Rathi.

"Our May 2024 target of Rs146 is based on the two-stage DDM model. This implies a 1.1 times P/ABV multiple on its FY25e book," it added with a buy rating. The brokerage sees lumpy slippages from the corporate book and stress in the SME book as the key risks for the lender.

Rekha Rakesh Jhunjhunwala owned 2,31,51,719 equity shares or 2.89 per cent stake in Karur Vysya Bank as on March 31, 2023. Her stake in the private lender is worth Rs 245 crore on Wednesday. It is Jhunjhunwala's third largest banking bet after Canara Bank and Federal Bank.

Karur Vysya Bank delivered its highest-ever PAT, led by a stable NIM at 4.4 per cent and healthy fee income, partly offset by higher opex and credit costs. GNPA improved to 2.3 per cent, with higher write-offs negating elevated slippages. Loan growth was led by agri, MSME and loans against property, said HDFC Securities.

"KVB continues to focus on retail deposit mobilisation and better cross-sell to fuel its loan growth on the back of revamped investments in distribution to deliver its FY24 targeted balance sheet growth. However, we believe that the combination of margin compression and higher opex intensity is likely to cap return ratios," it said with an 'add' rating and a target price of Rs 119.

 

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Business Today)

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