Broker's call: Karur Vysya Bank (Hold)

CMP: ₹81.7

Target: ₹87

Karur Vysya Bank (KVB) reported muted numbers for Q2FY19 with higher gross NPAs at 7.7 per cent. Pre-provisioning profit was affected by low net interest income growth of 4.3 per cent versus a 23.7 per cent decline in other income. However, due to lower provisioning, the net profit grew 10.7 per cent. Business grew about 5 per cent y-o-y to ₹1.05 lakh crore as on September 30, 2018.

View: Since our last update (Q1FY19, ‘Hold’ @ ₹107 on August 1, 2018), the stock of KVB has declined about 27 per cent due to muted business growth, high NPAs and volatile market conditions.

As indicated earlier, the slippages declined in Q2 while the overall NPAs were high due to slower recoveries. In the near future, the results may not witness any robust growth rates considering cautious approach adopted by the bank. However, with retail advances continuing to grow at a healthy pace, the inherent business franchise would have to be strengthened gradually. In future, KVB aims to grow at a pace of around 15 per cent and maintains its focus on improving the overall asset quality.

We maintain our ‘Hold’ rating on the stock of KVB with a target price of ₹87, valuing the stock at 1.25x its FY20E ABV.