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Business News/ Markets / Stock Markets/  Rakesh Jhunjhunwala portfolio: Emkay Global says to buy these 2 banking stocks

Karur Vysya Bank and Canara Bank are two stocks in Rakesh Jhunjhunwala's portfolio that the brokerage Emkay Global is bullish on. The brokerage has a target price of 78 for the shares of Karur Vysya Bank, which represents a significant jump of 39 per cent from the share's current market price of 56. For the shares of Canara Bank, Emkay Global has set a target price of 282, which implies a strong potential upside of 24 per cent from the current market price of 226. Following the release of the Q1FY23 results, Emkay Global is bullish on these two banking stocks.

Karur Vysya Bank share price target

Emkay Global has said in a report that “KVB reported a strong beat on PAT at Rs2.3bn vs. our estimate of Rs1.9bn, driven by better margins, higher other income and lower provisions. The bank is well on track after the clean-up in FY18-20, with the GNPA ratio trending down to 5.2% in Q1 from the highs seen in Q1FY20 of 9.2%. The RoA has also shown an improving trend and has now remained >1% for the second consecutive quarter. Overall credit growth surprised positively at 15% yoy/4% qoq, backed by strong growth in commercial/agri and continued momentum in retail. This, coupled with better investment yields, led to a nearly stable but healthy margins at 2.8%. The bank has guided for continued healthy growth momentum, NIM at 3.75% and lower LLP, which all should lead to a RoA of 1.1% in FY23."

“We raise our FY23/24/25 EPS estimates by 10%/8.0%/8.3% respectively, mainly driven by better growth and lower LLP, while its otherwise higher cost ratios should also see a moderation. We expect the bank to report a steady improvement in its RoA/RoE profile to 1-1.2%/11-14% from sub-1%/10% in the past five years. Retain Buy with a revised TP of Rs78 (0.7x Jun’24E ABV). We like KVB in the small-cap space given its steady improvement in RoE profile and management stability, best-in-class capital profile (Tier I >17%) and attractive valuations (0.5x FY24E ABV). The high dividend yield of 4-5% adds to the comfort," said the brokerage.

As per the shareholding pattern of Karur Vysya Bank (KVB), Rakesh Jhunjhunwala individually holds 3,59,83,516 shares of the bank or 4.50% stake in the bank for the quarter ended on March 2022.

Canara Bank share price target

Emkay Global has said in a note that “Canara Bank reported a strong beat on PAT at Rs20bn in Q1 (est.: Rs15bn), driven by higher treasury income, PSLC fees and lower LLP, partly offset by higher NPI (mainly on Future Group/Bajaj Hindustan and a telecom co). Treasury losses were relatively lower at Rs3.6bn, and there could be Rs1-1.5bn more losses, if the yield rises in Q2. Overall credit growth surprised positively - up 15% yoy/6% qoq on strong corporate, RAM and gold loan growth. However, NIMs were flat at 2.8% due to a moderation in loan yields as growth was mainly driven by the corporate book, partly offset by better investment yields. The bank has guided for double-digit credit growth and stable-to-better margins."

“Asset quality continued to improve in Q1, with the GNPA ratio down 53bps qoq to 7%, helped by lower slippages, while the restructured book declined by 20bps to 2.6% of loans. The relapse rate in the restructured book has been 10%, and the bank expects the overall relapse rate to be 18-20% in restructured book. Slippages in the ECLGS book remain low at 3%, and thus do not pose any risk. NARCL transfers in Q2 should further reduce NPAs," said the brokerage.

“We expect a gradual improvement in the bank’s RoA/RoE to 0.6-0.7%/12-15% over FY23- 25E from 0.5%/11% in FY22, driven by better growth and lower LLP. That said, we believe the bank will need to shore up capital, given CET 1 is sub-optimal at 10.5%. Retain Buy with a TP of Rs282, based on 0.7x FY24E ABV and subs/investment value of Rs23," said Emkay Global.

Rakesh Jhunjhunwala personally owned 3,55,97,400 shares of the bank, or 1.96 stake in the bank, for the quarter that ended in June 2022, in accordance with Canara Bank's shareholding pattern available on BSE.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Updated: 27 Jul 2022, 04:20 PM IST
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