Why do brokerages raise target price on Rekha Jhunjhunwala-backed Karur Vysya Bank stock? Shares up 10%

Tamil Nadu-based scheduled commercial bank, Karur Vysya Bank skyrocketed more than 10% on BSE during Wednesday's trading session. The performance comes after the lender posted double-digit growth in Q4 earnings and declared a dividend for investors. Among the key shareholders to make significant gains in Karur Vysya would be late market mogul Rakesh Jhunjhunjhunwala's wife Rekha who is among the largest public investors in the bank. Brokerages are optimistic about the bank and have recommended buying while raising the target price.

At the time of writing, Karur Vysya's share price traded at ₹104.98 apiece up by 7.41% on BSE. The stock has zoomed by at least 10.2% in the intraday trade with a high of ₹107.70 apiece in the early deals.

According to the shareholding pattern, Rekha holds 3,59,83,516 equity shares or a 4.50% stake in the bank. As per Trendlyne data, the shareholding is valued at nearly ₹402 crore as of now.

In Q4FY23, the lender's PAT stood at ₹338 crore up by 58.3% YoY. Net interest income stood at ₹892.6 crore higher by 25.7% YoY. As of March 31, 2023, the bank's gross NPA dipped to 2.27% in Q4FY23 as compared to 2.70% in Q4FY22. In value terms, gross NPAs of the bank stood at ₹1,458 crore, down from ₹3,431 crore.

Also, the bank declared a dividend of ₹2 per equity share of face value ₹2 (i.e. 100%) for the financial year ended 31 March 2023, subject to the approval of the shareholders.

Read here: Karur Vysya Q4 Results: Net profit up 58.3% at ₹338 cr, dividend declared

What do experts say?

Experts like Karur Vysya Bank!

Brokerage ICICI Securities listed 5 key reasons why it likes this bank. These are --- 1) the edge it has in cost of deposits over peers, 2) balanced loan book and broad-based growth, 3) amongst lowest SMA 1+2 book across peers, 4) strong tier-1 capital, and 5) superior return ratios.

In its note, ICICI Sec said, "in line with our view of peaking NIMs, we are modelling moderation in the same parameter for KVB. After a broadly stagnant employee count for past >5 years, the bank intends to hire aggressively. This would undoubtedly lead to higher ‘cost to income’ (C/I) ratio (captured in our estimates), but would also improve franchise strength, in our view. Despite a sharp rise in C/I ratio, we believe the rising RoA trajectory would sustain, aided by sharp moderation in credit costs."

Further, this brokerage added, "KVB has already done heavylifting with net NPAs now at <1%, >20% PCR on RSA and 100% PCR on SR, while it continues to have amongst the lowest SMA 1+2 books across peers. Overall, there is strong visibility of 1.4-1.5% RoA and >15% RoE for FY24E-FY25E driven by the sharp delta in credit cost. Upgrade to BUY (earlier: Add) with a revised target price of Rs145 (earlier: Rs120), valuing the stock at 1.1x FY25E ABV (1.2x FY24E ABV)."

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Also, while upgrading its outlook on the bank, Antique Stock Broking's analysts in their note said, "KVB’s continues to deliver a healthy core performance and is cleaning up the balance-sheet with stress loans coming off from peak of 6.5% in 2QFY22 to 2.3% in FY23 – the benefit of latter is expected to flow in credit cost in FY24. This should help off-set moderation in NIMs and non-core income and enable bank to deliver ROAs of 1.2% over FY24/FY25 and ROEs of 13% on a high Tier 1. Maintain Buy."

Antique raised its target price to ₹140 apiece from earlier ₹130 on Karur Vysya.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.