Advances stood at Rs. 50,616 Cr vs Rs. 45,973 Cr in Q4FY18, a growth of 10% YoY. Retail loans exhibited a robust growth of 48% YoY contributing 22% to the overall advances (Core Retail growth stood at 24% while the remaining growth was contributed by IBPC portfolio taken on books for 90 days). The bank chose to grow cautiously in Agri (+3% YoY), SME (+6% YoY) and Corporate (-2% YoY) with each contributing 16%, 34% and 28% respectively. We expect loan growth of 15% CAGR over FY19-21E. NIMs were higher 22 bps QoQ at 3.88% on the back of increase in yields....

The hope of meaningful strategic initiatives (by the new CEO) underpinned our originally constructive stance. We expected slippages to reduce and recoveries to pick up. However, this has not yet fructified. On the contrary, the guidance for higher slippages surprised us in 3QFY19 (refer to our note - Bolt from the blue). In spite of contradictory SMA I & II levels, we believe elevated slippages will persist for some more time. A faster than anticipated cleanup and sweeping managerial changes may provide upsides to our currently NEUTRAL stance. KVBs pull back (mostly via reduced credit costs) is postponed; provisions will remain high in FY20E. Maintain NEUTRAL. Our TP is Rs 84 (1.4x FY21E ABV of Rs 60).

We recently met Mr P.R. Seshadri, MD & CEO, Mr. J Natarajan, President and COO and Mr. Shivrama Prasad, CFO, Karur Vysya Bank (KVB) and gleaned incremental insight into the asset quality and other aspects of the bank. We do not have KVB under coverage and therefore, do not have a rating on the stock. We share the management meet takeaways below. N.B. We like Karnataka Bank (KTK) and South Indian Bank (SIB) as regional bank turnaround plays as they have significant valuation comfort. (See KTK 3QFY19 Results Note: Transient Factors At Play. See SIB 3QFY19 Results Note: Barring IL&FS;, Corporate Book Remains Under Control.) Our top mid/smallcap picks are City...

KVB reported a muted quarter on the asset quality front; with profits plummeting on the back of significantly higher provisions Advances stood at Rs. 47,766 Cr vs Rs. 44,836 Cr in Q3FY18 a growth of 7% YoY. Retail loans exhibited a robust growth of 25% YoY contributing 19% to the overall advances. The bank chose to grow the Agri, SME and corporate book cautiously, with each contributing 17%, 35% and 28% resp. We expect loan growth of 14% CAGR over FY19-21E. NIMs were higher 3 bps QoQ at 3.60%. They were at 3.76% YoY resulting in...

Downgrade the stock to Neutral (even after the steep fall). Revise TP to Rs 77 (1.4x Dec-20E ABV of Rs 55.4). Apparently, KVB reported yet another disappointing qtr with sequentially stagnant business momentum. Slippages jumped to ~Rs 9.1bn led by corp (~Rs 6.9bn, incl. IL&FS; of Rs 3.1bn). SME slippages, too, remained worryingly elevated at ~Rs 1.58bn. Recoveries were higher with two sales to ARCs for cash. Margins, surprisingly, were sequentially stable at ~3.6%.

Karur Vysya Bank (KVB) is an old generation regional private bank skewed towards SME lending, having a strong presence in Southern India (TN). New management with extensive track record in Retail banking: Mr. P R Seshadri, joined KVB in Sep 2017 as the MD & CEO. He is a seasoned banker with SME and Retail banking experience of over 25 years spanning multiple geographies, mainly with Citibank. He has a proven track record of building & leading large teams as well as executing complex business objectives. Mr. Seshad i s e te si e e pe ie e & expertise in Retail & SME shall aid KVB in...

Maintain BUY with a revised TP of Rs 116 (1.75x Sept-20E ABV of Rs 66.5). KVBs 2Q performance was subpar with muted business growth (including focus segments such as SME), steep fall in non-interest income (treasury loss- ~Rs 210mn), sequential decline in NIMs (for the 4th consecutive qtr) and a rise in other opex (incl. a one off of ~Rs 80mn). While net SME slippages moderated (~Rs 980mn vs. ~Rs 2.4bn QoQ), they continue to remain above average. However, asset quality was stable with drop in slippages (albeit remains elevated) and the calc. PCR improved 330bps QoQ and 640bps FYTD.

Advances at INR 478.9 bn grew ahead of the system at 12.9% yoy/6.9% qoq, led by robust traction in retail (+24.9% yoy) and commercial (14.6% yoy) credit. On the liabilities side, the bank saw nil growth in TDs while CASA continued to show improvement. At 30%, CASA improved by ~90 bps qoq while growing by 8% yoy/4% qoq in absolute terms. NII at INR 5.8 bn grew 8.4% yoy. NIMs at 3.65% witnessed slight pressure mostly on account of increasing in total stock of stress on the books. The bank remains confident of certain measures leading to improvement in yields in the near term. Non-interest revenue at INR 2.6 bn grew by 8% yoy/22% qoq. The bank remains optimistic on improving non-interest revenue traction through TPP and forex income. The bank has become one of the largest channels for its life insurance partner. Provisioning at INR 4.2 bn was up 81% yoy/7% qoq, translating into credit costs of 3.6% which is still on the upper side. However, with Q1 being the last quarter of chunky corporate slippages (as guided), we expect credit cost to normalize going forward and aid ROA. PAT at INR 0.5 bn declined yoy/qoq. Slippage during the quarter was INR 7.9...

Maintain BUY with a TP of Rs 156 (2x Mar-20E ABV of Rs 78). KVBs 4Q results were along expected lines. Slippages were elevated (5% ann.) leading to a YoY doubling of GNPAs (6.56%, +62bps QoQ). Credit costs also jumped (376bps ann.). On the flipside, NIMs were steady (3.7%, down 6bps) despite adjusting for the one-off. Robust fee growth (+30% YoY), sustained CASA accretion (+12% YoY) and a mere 2% hike in opex (despite gratuity of Rs 260mn) were heartening.

Advances at INR 448 bn grew 10% yoy, led by growth in retail of 20.2% yoy / 3.4% qoq. Corporate book at INR 144 bn grew by 6% yoy while commercial/SME book at INR 161 bn grew by 11% yoy. Within the retail portfolio, the bank witnessed robust traction in housing loans and mortgage which grew by 20% and 44% yoy respectively. We continue to factor in 12% CAGR in advances over FY19/20. The bank witnessed improving CASA ratio. CASA deposits formed 29.1% of the total deposit base. The management is guiding for >31% CASA by end of FY19. Asset quality deteriorated further with slippages of INR 5.9 bn, of which INR 4.3 bn were from the restructured pool. Impact of RBI's Feb 2018 circular was slippage of INR 1.8 bn. GNPAs at 6.56% were up 62 bps qoq / NNPAs at 4.16% were up 28 bps qoq. Total watch-list stands at IONR 3.25 bn (INR 6.5 bn last quarter). The management expects slippage of another INR 2 bn from outside the watch-list (from restructured standard book) in...

Karur Vysya Bank reported weak numbers in Q3 after showing some signs of recovery in the preceding quarter. While advances growth improved to 16.6% YoY (11.0% in Q2 & 7.7% in Q1); gross NPAs increased substantially by 111bps on QoQ basis to 5.94%. The net interest income (NII) growth was muted at 8.5% led by interest reversals. However, pre-provisioning profit (PPP) grew at a healthy pace of 25.7% mainly due to 32.2% increase in non-interest income. Net profit continued to decline further down 38.2% YoY (5.5% QoQ). Recommendation: We have been maintaining Neutral rating on KVB due to...

Sector: Banking /Small-Cap | Earnings Update 3QFY18 Background: Karur Vysya Bank (KVB) is one of the mid-sized banks in the private sector space, operates through a network of 773 branches and about 1,777 ATMs. KVB's business - 82% is concentrated in South India with about 73% of its branch footprint in Tamil Nadu and Andhra Pradesh. As of 3QFY18 the total...

Maintain BUY with a TP of Rs 151 (2x Dec-19 ABV of Rs 76). KVBs 3Q results were on expected lines. GNPAs jumped to 5.94% (up ~320/110bps YoY/QoQ) and credit costs spiked (274bps ann. vs. 91bps YoY) leading to a net earnings dip of 38% YoY. However loan growth sustained the uptrend (+17%) and NIMs held up at 3.76%. The sequential reduction in average ticket size of commercial (16%) and corp. (5%) loans is an early indicator of the managements execution capabilities. No meaningful addition to the watchlist was an additional positive.

KARUR VYSYA BANK (KVB) is a south-based bank which started in 1916 in Karur, a textile town in Tamil Nadu. KVB primarily started as an SME bank and continues to position itself as a comprehensive player to cater to the needs of SME customers. Majority presence in semi-urban and rural locations places the bank at the heart of SME financing. The bank over the years has withstood innumerable changes and challenges only to emerge profitably as one of the leading regional banks in India. As of FY17, the bank had a network of 711 branches, having grown at a 10-year CAGR (FY08-17) of 10% while customer base over the last 7 years has grown at a CAGR of 13.5%. Of the total 711 branches, 377 (53%) are located in Tamil Nadu which makes the bank susceptible to geographical risk. Loan book of INR 442.4 bn which has grown at a 10-year CAGR (FY08-17) of 19.2% is fairly diversified among corporate, retail, SME and agri. In addition to the highly secured nature of advances, we also like the relatively shorter maturity of the lending book (80% advances maturing in <3 years; 38% in <12 months) and the granularity (only ~18% of the loans are of ticket size of > INR 50 crore). In terms...

Initiate coverage with a BUY. Our TP of Rs 154 is based on a relatively inexpensive target multiple of 2.0x Dec-19 ABV of Rs 77. Karur Vysya Bank (KVB) is a regional PVT bank in Southern India, with a tilt towards SME lending. Despite this lucrative franchise, KVBs misplaced aggression in big ticket Corporate lending (18% loan CAGR over FY11-14) and the subsequent stress has led to a visible stumble in stock returns. Over the trailing five years, KVBs shareholders have earned 5% CAGR vs 16% on FB and 28% on CUB. KVB enjoys comparable Retail and SME franchise (ergo pricing power) and the benefits of granularity.

Karur Vysya Bank (KVB) disappointed as profitability declined (PAT down 48/49% YoY/QoQ to Rs 75cr) on credit costs (+2%) remaining elevated in Q2FY18. Asset quality deteriorated with G/NNPAs up 53/39bps sequentially to 4.8/3.2%. Slippages stood at Rs 426 cr (4% annualized; 3.8% in Q1FY18).

Sector: Banking /Small-Cap | Earnings Update 2QFY18 Background: Karur Vysya Bank (KVB) is one of the mid-sized banks in the private sector space, operates through a network of 752 branches and about 1,766 ATMs. KVB's business - 82% is concentrated in South India with about 73% of its branch footprint in Tamil Nadu and Andhra Pradesh. As of 2QFY18 the total...

KVB's 1QFY18 results were in line with expectations. While PAT remained flat YoY and loan growth remained 7.7%, overall growth should pick in 2HFY18. While slippages were high during the quarter, they were largely from the watch list. Next two quarters could be challenging but FY19 looks much stronger for the bank. While credit cost will ..

Asset Quality deteriorated with GNPAs increasing sharply by 69bps QoQ to 4.27% and NNPAs increased by 32bps QoQ to 2.85%. This sharp increase was majorly on account of slippages from the corporate book. Outstanding restructured loans stands reduced to INR 8.1bn (1.91% of advances) vs. INR 8.4bn in 4QFY17. Total outstanding SDR loan accounts...

Karur Vysya Bank (KVB) reported strong profits of Rs.218 cr which grew by 58% YoY (up 88% QoQ) due to profit on sale of investments of Rs.78 cr. Loan growth improved to 5% YoY in FY17 as against 2% YoY in 9MFY17 led by growth in commercial book (up 13.6% YoY).