KARUR VYSYA BANK:

Banking AND Financial services

Karur Vysya Bank (KVB) reported better operating performance delivering a PAT of Rs.138cr for Q4FY16 (7% YoY) against Rs. 129 cr YoY. Loan growth improved to 8% YoY in Q4 FY16 as against 6% YoY in Q3 FY16. During the current quarter, cost to income for the bank has increased to 60% against 55% YoY (48% QoQ). Consequently, NIMs improved during the same period by 8 bps QoQ to 3.55% compared to 3.47% seen in the previous quarter. Also, asset quality improved, as stressed assets, as % of loans, declined by 320bps QoQ to 4.7% of loans.

Outlook:

We like the bank considering its diversified asset book and gradual improvement in liability franchise, inclined towards retail deposits. Also, bank reported loan growth at 9% YoY which is at a six-quarter high although growth in gold loans (16%of loans) is still weak. KVB is currently trading at 1.2x FY17 adj. P/ABV. We value the bank at 1.2x FY18E adj. P/ABV. We upgrade to BUY rating on the stock with a target price of Rs. 529 implying 14% upside.

Key Highlights

Credit Growth improved QoQ: KVB’s advances growth improved in Q4FY16, expanding by 8% YoY from 6% in Q3 FY16 to Rs. 39,476 cr. This was mainly on account of 8% YoY growth in commercial portfolio (32% of loan book) and mild growth of 3% YoY in the corporate segment. The management attributes this to its cautious approach in the wake of cleaning up its balance sheet, and Slowdown in

overall economic activities. The management's expects a pick-up in loan growth to 15% in FY17E. It highlighted that gold/corporate loan book would be under pressure till the overall economy revives. We have factored loan growth of 12% CAGR from FY16-FY18E lower than the historical average of 25%.

Stress assets declined led by sale to ARCs: Asset quality trends for the bank had been volatile with fresh slippages of around 6% of loans in Q4 FY16 which was spread across various accounts and industries. The bank also reported fresh restructuring of Rs.34 cr in Q4FY16 vs 52 cr in Q3 FY16which resulted standard restructured advances to reduce to Rs.1,355 cr i.e. ~3.4% of net advances. Stressed assets, as % of loans, declined by 320bps QoQ to 4.7% of loans. The bank sold 1.5% of loans in the current quarter and has reported a loss of 1.3% of loans (Rs.500 cr), which is expected to be amortized across the next seven quarters.

Margins improved as well as Cost / Income ratio: For the current quarter, reported NIMs improved by 8 bps to 3.55% on QoQ basis largely on account of fall in Cost of Funds. The cost of funds fell by 55 bps to 6.88% QoQ higher than fall in the yield on advances by 31bps QoQ to 11.31%. However, Cost to Income ratio for the bank is slowly cooling off from high of 55% in FY14 to 50% as on FY16 on the back of lower increase in employee expenses.

CHARTS:

FINANCIAL SUMMARY:

Y/E

PAT

EPS

Change

P/E

BV

P/BV

Net NPA

Adj BV

P/Adj.BV

RoE

RoA

Mar

(Rs. Cr)

(Rs.)

YoY (%)

(x)

(Rs.)

(x)

(%)

(Rs.)

(x)

(%)

(%)

FY15

464

39.9

5

11.6

349

1.3

0.78

326

1.4

12

0.9

FY16

568

46.6

17

9.9

375

1.2

0.56

358

1.3

13

1.0

FY17E

659

54.2

16

8.5

414

1.1

0.57

394

1.2

14

1.1

FY18E

767

63.1

16

7.3

461

1.0

0.47

441

1.0

14

1.1

ResultsUpdate:

Karur Vysya Bank

Quarterly

Yearly

Fig in Rs.Cr

Q4FY16

Q4FY15

Y-o-Y

Q3FY16

Q-o-Q

FY 16

FY 17E

FY 18E

Ch (%)

Ch (%)

Interest income

1370.2

1327.8

3.2

1352.4

1.3

5443.4

5941.4

6697.3

Interest expended

897.5

930.4

-3.5

904.2

-0.7

3662.0

4003.9

4501.8

Net interest income

472.6

397.4

18.9

448.2

5.5

1781.4

1937.5

2195.5

NII as a % of Net income

74.0

68.8

-

72.2

-

71.6

71.4

72.0

Other income

166.1

179.8

-7.6

172.8

-3.8

706.8

777.5

855.3

Total income

1536.3

1507.6

1.9

1525.1

0.7

6150.2

6718.9

7552.6

Net total income (3+4)

638.8

577.2

10.7

621.0

2.9

2488.2

2715.0

3050.8

Operating expenses

379.9

317.2

19.8

295.4

28.6

1252.8

1357.5

1525.4

Personnel exp

139.3

157.8

-11.7

126.6

10.1

547.4

610.9

732.2

Other exp

240.6

159.4

51.0

168.9

42.5

705.4

746.6

793.2

Profit before tax & prov.

258.9

260.0

-0.4

325.6

-20.5

1235.4

1357.5

1525.4

Provisions & contingencies

-12.6

194.8

-106.5

92.7

-113.6

323.8

350.2

352.4

PBT

271.5

65.2

316.6

232.8

16.6

911.6

1007.3

1173.0

Tax

133.5

-64.0

-308.6

80.0

66.9

344.0

348.5

405.9

Profit after tax

138.0

129.2

6.8

152.8

-9.7

567.6

658.8

767.1

Extra ordinary Item

0.0

0.0

-

0.0

-

-

0.0

0.0

Reported PAT

138.0

129.2

6.8

152.8

-9.7

567.6

658.8

767.1

Equity

121.9

121.6

-

121.9

-

121.9

121.6

121.6

Cap. adequacy ratio (Basel-II)

12.17

14.62

-

12.90

-

12.17

11.80

13.80

EPS (Rs)

11.3

11.8

-4.1

12.5

-9.6

46.6

54.2

63.1

NIM (%)

3.6

3.2

-

3.5

-

3.4

3.3

3.3

CASA (%)

23.3

22.0

-

23.4

-

23.3

23.0

24.0

Gross NPA (%)

1.3

1.9

-

1.9

-

1.3

1.5

1.3

Net NPA (%)

0.55

0.78

-

0.96

-

0.55

0.60

0.50

Provisional Coverage (%)

82.5

75.2

-

75.2

-

82.5

72.7

72.7

NII/ Operating expenses

1.2

1.3

-

1.5

-

1.4

1.4

1.4

1 JAN 2017

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