Karnataka Bank shares slip after hitting 52-week high; Axis Securities sees stock at Rs 250. Details here

Shares of Karnataka Bank Ltd on Friday surged 3.73 per cent to hit their 52-week high of Rs 223.75. However, the counter gave up their gains and slipped into the red. It eventually settled 0.60 per cent lower at Rs 214.40 over its previous close of Rs 215.70. That said, the multibagger stock has gained nearly 200 per cent in a year.

The private lender posted Rs 370.70 crore net profit for the first quarter ending June 30, 2023 (Q1 FY24) as against Rs 114.18 crore registered during Q1 FY23, a year-on-year (YoY) growth of 224.66 per cent. The bank's loan book quality was seen improving with the gross NPAs (Non-performing assets) declining to 3.68 per cent in Q1 FY24 over 4.03 per cent in the year-ago period. The net NPAs declined to 1.43 per cent from 2.16 per cent.

Domestic brokerage Axis Securities has given a 'Buy' call on the counter with a target price of Rs 250 over a period of 12 to 18 months. "The management is centralizing processes to build capacities on the operational and technological side as well as to deploy sales teams outside the branches. Moreover, it has set up a digital and analytical factory in Bengaluru which would aid the bank in cross-selling and upselling products among its existing 1.30 crore customer base," it stated.

The management is confident of taking advances to Rs 73,000–75,000 crore by the end of FY24, Axis Sec said. "Furthermore, it is eyeing to double the advances in 3 to 3.5 years to 1 lakh crore by growing advances at 17 per cent-18 per cent. Growth in advances would be assisted by healthy deposit growth of 10-12 per cent (YoY). In the retail loan book, the bank is growing strongly on gold loans and home loans," it mentioned.

According to management, although the cost of funds is expected to inch up further in the upcoming quarters, new acquisition on loan book would offset the same, thereby keeping margins in the guided range of 3.50 per cent to 3.70 per cent, the brokerage also said. We expect margins to remain in the range of 3.55-3.65 per cent over FY24-25E, it added.

"Slippages are expected to remain at current levels and NPA is to report at 1.20 per cent for FY24. Thus, credit cost is expected to remain stable, thereby aiding profitability," it further said.

On Q1 FY24 results, Axis Sec said non-interest income reported robust growth of 144 per cent YoY. "With the focus on building capacity on operational as well as on the technology side, Opex inched up 32 per cent YoY. However, it declined by 6 per cent QoQ. The C/I ratio was reported at 47.2 per cent (up 180 bps QoQ and down by 250 bps YoY). PPOP reported healthy growth of 46 per cent YoY," it stated.

"The bank's advances grew by 5.40 per cent YoY to Rs 61,489 crore. NIM (Net interest margin) expanded by 35 bps YoY to 3.70 per cent, aiding the bank to grow its NII (Net interest income) by 18.50 per cent YoY to Rs 815 crore," the brokerage further said.

Axis Sec, however, highlighted that a slowdown in the systemic credit growth rate may impact its estimates.

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