HDFC Securities recommended reduce rating on Karur Vysya Bank with a target price of Rs 33 in its research report dated June 25, 2020.
HDFC Securities' research report on Karur Vysya Bank
GNPAs dipped 5.3/4.8% to Rs 42.1bn (8.7%), and were aided by w/os of ~Rs 3.5bn (mostly in corporate loans) and ARC sales of ~Rs 0.9bn. However, this improvement was optical, due to the standstill classification benefit of Rs 1.95bn, adjusted for this GNPAs would’ve been flattish YoY/QoQ. Further, slippages remained elevated at 3.6% ann., with gross corporate slippages at 7.8%, and gross SME slippages at 3.3%. Performance of the retail and agri portfolios was relatively satisfactory. While the management guides for slippages of 1.75-2.5%, we conservatively build slippages of 3.5% over FY21-22E, owing to extrinsic factors and the moratorium % (esp. in the commercial banking segment).
Outlook
KVB’s 4Q earnings were ahead of our estimates. However, a look at the fine print reveals that (1) a sharp rise in treasury gains boosted earnings and (2) high w/offs and the standstill classification optically curtailed GNPAs. The sharp fall in deposits was inexplicable. We maintain REDUCE with a TP of Rs 33 (0.54xFY22E ABV). Our stance is premised upon, the (1) leadership void and corresponding uncertainty, and (2) weak performance outlook.
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