Sell Karur Vysya Bank; target of Rs 29: Emkay Global Financial

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Emkay Global Financial's report on Karur Vysya Bank

Despite subdued growth and depressed margins, KVB reported a PAT of Rs1.05bn (est. Rs658mn), driven by high treasury gains and low opex. Lower Covid-19-related contingent provisions of Rs730mn, with cumulative provisions at Rs1.2bn (0.3% of loans), look disappointing. The moratorium rate stood at 41% as of July’20 vs. 52% in March’20, led by commercial (55%), corporate (44%) and retail book (34%). TL constitutes 48% of the moratorium book and has 34% of customers (in value terms), who have not paid any EMIs. KVB has raised LLP guidance to 2-2.5% from 1-1.5%. The bank has appointed Ramesh Babu Boddu (ex-SBI) as new MD for the next three years after the early exit of P Sheshadri. New MD will unveil his business strategy in Q2 results call, which will be keenly watched out for.

Outlook

We maintain Sell (no weight in EAP) with a TP of Rs29 (based on 0.4x FY22E ABV) amid concerns over its asset quality, especially its exposure to the SME book, and subdued return ratios.

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