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Target: ₹260
CMP: ₹221
We initiate coverage on Karur Vysya Bank (KVB) with BUY rating on account of the following key reasons: KVB has a healthy sustainable margin profile, being underpinned by a strong liability franchise, typified by industry-low SA (savings account) card rates; KVB has effected a growth turnaround through digital under-writing; credit cost outlook seems reasonably comforting and asset quality volatility is a thing of the past.
For KVB, the SA rate for balances upto ₹5 lakh is 2.25 per cent and for balances between ₹5-10 lakh is 2.5 per cent. These represent the very lowest SA card rates for balances just below ₹0.5mn and ₹1mn, respectively, in our comparison universe.
We think that, for a bank like KVB, which does not have a premium SA rate strategy, most of the SA deposits would be concentrated below ₹10 lakh, which, in a sense, is the secret sauce for KVB’s relatively low cost of deposits.
We value KVB at 1.5x FY26E P/BV for an FY25E/26E/27E RoE profile of 16.4/16.8/16.9 per cent. We place KVB at no. 6 in our pecking order of 15 banks. It is our second most preferred private sector mid and smallcap bank pick behind Federal Bank.
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