Multibagger Karur Vysya Bank offers further potential upside of 24%: Anand Rathi

Karur Vysya Bank shares, which have doubled investors’ wealth so far in CY 2022, are liked by brokerage firm Anand Rathi for further potential gains of 24% as the brokerage has set a target price of Rs 115.

Anand Rathi Share and Stock Brokers highlighted that the bank’s profitability during Q2FY23 has seen an improvement given a host of factors, including moderation of slippages, pick-up in credit growth (many-year high), better margins and strong liquidity and capitalisation. With credit growth expected to be in the mid-teens and moderation of credit costs, earnings are expected to be strong. The brokerage hence retained its buy call on the stock, valuing the stock at 0.9x P/ABV on the FY25e book.

“With most of the stress already delinquent/restructured and collections reaching pre-Covid levels, net slippages are expected to be negative in the near term. We estimate the bank’s FY23 GNPA/NNPA at 3.8%/1.3%," noted the brokerage firm.

With a pick-up in business growth and a moderating slippage run-rate, medium-term credit costs are expected to be soft, noted the brokerage. Higher business growth combined with benign credit costs would lead to strong profitability in the medium term. Citing these the brokerage estimates a 1.1% RoA in FY23.

The brokerage’s 1-year target price is based on the two-stage dividend discount model or DDM. This implies ~0.9x P/ABV multiples on its FY25e book, said the brokerage.

Nevertheless, the risks to the brokerage’s call are lumpy slippages from the corporate book as well as stress in the SME book.

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