This Scheduled Commercial Bank Can Give Return Up To 49%

One of the leading stock-brooking firms Anand Rathi sees a potential return of up to 48.98% from the stock of Karur Vyasa Bank. This scheduled commercial bank was founded in 1916 with its headquarters at Karur in Tamil Nadu.

The bank primarily operates in the treasury, corporate/wholesale banking and retail banking segments. It also provides services such as personal, corporate and agricultural banking as well as services to NRIs and SMBs.

The brokerage firm feels that the bank's Q4FY23 profitability improved with its RoA coming at 1.5% (up 18bps sequentially) on account of a strong operating performance.

Q4FY23 performance

According to Anand Rathi's research note, Karur Vyasa Bank's GNPA and NNPA improved respectively by 39bps and 15bps sequentially on account of strong recoveries. Slippages for the quarter were Rs 2.2 billion (approximately 1.4% of loans), which is much lower than expected.

PCR (incl. w/o) sequentially improved from 127bps to 92.1%. The standard restructured book was Rs 9.8 billion (down 16% q/q), constituting 1.5% of loans. Surprisingly, the overall SMA 30+ for the bank was Rs 3.6 billion (0.6% of loans), the lowest among its peers.

Valuation & Rating

Anand Rathi stated that there were four key positives for the bank: improving asset quality, decent credit growth across segments, stable margins and strong liquidity & capitalisation.

The stock-brooking firm expects that with the credit growth to be in the mid-teens and moderating credit costs would be strong. Also, the GNPA would be held below 2% through FY24 and FY25.

Higher business growth combined with benign credit costs would lead to strong profitability in the medium term. "We estimate a 1.4% RoA through FY24 and FY25. We retain our Buy rating, with a price target of Rs 146 valuing the stock at 1.1x P/ABV on the FY25e book," the brokerage firm said.

Dividend Details

Further, in its board meeting held on May 15, the bank recommended a dividend of Rs 2 per equity share on the face value of Rs 2 each (i.e. 100%) for the financial year ended on 31st March 2023.

It is subject to the approval of members at the ensuing annual general meeting. No record date or book closure details were shared by the company.

Share price movement

The latest market price of Karur Vyasa Bank stock is Rs 97.74 per share, which has declined by 3.34% on an intraday basis while writing this note. In the last one year, the share price has massively surged by 125.99%, and over three years it has risen by 314.15%.

Disclaimer

The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the author and the brokerage firm are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.