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Axis Securities
Karnataka
Bank (Buy)
CMP: ₹110.60
Target: ₹126
In Q1FY19, Karnataka Bank’s (KBL) NII has improved by 10.4 per cent y-o-y to ₹468.6 crore but down 13.46 per cent q-o-q. It’s net profit for the quarter, which has come at ₹163.2 crore against ₹133.8 crore y-o-y, which is up by 22 per cent. NIMs for the quarter has improved by 3 bps y-o-y to 3 per cent. GNPA for Q1FY19 stood at 4.72 per cent against 4.92 per cent q-o-q, which has declined by 20 bps. NNPA for the quarter stands at 2.92 per cent against 2.96 per cent q-o-q, which has declined by 4 bps.
The management is targeting a C-I of 42 per cent-45 per cent, RoE of 15 per cent and RoA of 1-1.25 per cent in three years. CASA target is at 30 per cent. Bank expects its transformational journey to continue and envisaged a universal banking model and looks to expand in 10-12 potential states for business growth.
While we expect better revenue traction and controlled opex will aid operating profit growth, the slight pressure on NII plus deferment of MSME slippages could be a concern. However, valuations look at attractive levels. Ability to sustain core profitability improvement will be a key lever driving RoA for the bank.
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