BackICICI Sec sees 51% upside in share price of this banking stock
Share price of Karur Vysya Bank has surged 15% in the last two weeks.
PremiumShare price of Karur Vysya Bank has surged 15% in the last two weeks. Analysts at ICICI Securities expect the bank's share price to further move up by 51%. The brokerage has upgraded its rating on Karur Vysya Bank (KVB) from 'Hold' to 'Buy'. " We have upgraded our rating on improving visibility on RoA recovery, continuity of strategic initiatives even after management change and favourable risk-reward. ICICI Securities has set a target price of ₹74 for this banking stock, 51% higher than its current market price of ₹49.10.
Karuru Vysya Bank's share has hit a 52-week high of ₹61.70 and 52-week low of ₹18.75. The bank's share price is down by 19% in the last one year.
Here are the key highlights of the report:
> Adequate capital (tier-1 @ 16.4%) and strong liability franchise to support loan growth revival. During the past couple of years, Karur Vysya Bank has been actively fine-tuning its portfolio mix by: a) reducing corporate exposure, b) building robust infrastructure to expand its retail portfolio, and c) setting up separate corporate and business banking units to sharpen the focus on both these segments. KVB also launched ‘NEO Banking’ – ‘phygital’ alternate distribution channel with focus on acquiring new-to-bank customers in commercial and corporate segments. Further, strong tier-1 at 16.4%, granular retail liability base and completion of corporate book realignment would help KVB shore up credit growth quicker than peers.
> Better collections and strong PCR @ 64% to ensure credit cost moderation from FY22E onwards. While we expect interim spike in slippages owing to Covid over H2FY21E, calibrated growth over past two years and recent collection trends suggest that incremental stressed asset formation would be within manageable limits and is unlikely to dent balance sheet quality meaningfully. Further, current PCR @ 64% is likely to restrict credit cost, only to incremental slippages and negligible legacy provisions. The same gives us comfort to lower our credit cost assumption for FY22E to 1.7% vs 2.2% in FY21E (still higher than the 10-year historical average of 1.4%).
> Bringing the culture of ‘ownership’. Karur Vysya Bank will roll out new performance-linked ESOP policy (starting Mar’21), covering ~90% of its workforce. ESOP vesting period will be 1-3 years depending upon retirement year and number of years serviced.
> RoA to touch 0.9% in FY22E. Historically, KVB demonstrated an average of ~1.5% RoA and ~20% RoE (FY07-FY12) on the back of robust asset quality (average NNPA >0.25%), strong pricing power and ability to control costs (average C/I ratio >42%).
However, aggressive branch expansion between FY12-FY13 followed by muted growth and more recently elevated credit cost, impacted RoA that stands at 0.63% as at Sep’20.
However, we believe the worst is behind and KVB is well placed to show steady improvement in RoA from FY22E onwards.
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