The brokerage cut its EPS estimates for FY21/FY22E by 35/38 per cent, factoring in lower loan growth, subdued fees and higher loan loss provision (LLP).
Emkay Global has given a sell rating to Karur Vysya Bank with 12-month target price of Rs 29. The share price moved up by 5.78 per cent from its previous close of Rs 33.75. The stock’s last traded price is Rs 35.70.
Despite subdued growth, depressed margins and elevated provisions, Karur Vysya Bank reported better than expected PAT of Rs 863 million against brokerage estimate of Rs 410 million), mainly due to higher treasury gains. According to the nrokerage, lower Covid-19-related contingent provisions of Rs 470 million, 0.1 per cent of loans, is disappointing.
Fresh slippages moderated to Rs 1.7 billion (1.5 per cent) against Rs 4.5 billion (3.9 per cent) in Q3, due to the standstill benefit given to Rs 1.9 billion (40 bps of loans) and absence of any lumpy corporate NPA. KVB has extended the moratorium to 41 per cent (as on 21st June) in value terms (agri 26 per cent, commercial 57 per cent, corporate 38 per cent, retail 34 per cent). The bank has made Covid-19 provisions of Rs 470 million at 10 per cent on loans, where the bank has extended standstill benefit, but no additional contingent provisions, which is a tad disappointing. The bank has optimistically guided slippages in the range of 1.7-2.5 per cent in FY21 after factoring in Covid-19’s impact.
Investment Rationale
The brokerage cut its EPS estimates for FY21/FY22E by 35/38 per cent, factoring in lower loan growth, subdued fees and higher loan loss provision (LLP). The brokerage expects the bank’s RoA to remain subdued at 0.3 per cent in FY21E, but could gradually improve to 0.7 per cent by FY23. The brokerage maintains a sell rating with a revised target price of Rs 29 based on 0.4 times FY22 ABV, due to uncertainty around top management, concerns around asset quality and sub-par return ratios.
The key risks to the call include better-than-expected NPA formation and appointment of a credible candidate at the MD & CEO position after an abrupt exit of the last MD.
Revised Estimates
Financials
For the quarter ended March 31, 2020, the company reported standalone interest income of Rs 1143.95 crore, down -.73 per cent from last quarter Interest Income of Rs 1152.36 crore and down -1.49 per cent from last year same quarter Interest Income of Rs 1161.28 crore. The bank reported net profit after tax of Rs 83.70 crore in the latest quarter.
Promoter/FII Holdings
Promoters held 2.11 per cent stake in the company as of March 31, 2020, while FIIs held 21.59 per cent, DIIs 22.8 per cent and public and others 53.5 per cent.
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