Hold Karur Vysya Bank: KJMC

Financial Performance Quarter ended June 07

Karur Vysya Bank (KVB) has reported a net profit growth of 24.93% to Rs 48 cr in the Q1 FY08 compared with Rs 38 cr in the corresponding period of the previous year. Total income rose by 34% to Rs 292 cr (Rs 218cr). Net Interest income increased by 20%, whereas, other income registered a jump of 40%. Interest on advances touched Rs 194 cr (Rs 131 cr), up 47.25 %. Net NPA stood low at 0.25% and Capital adequacy ratio (CAR) at 15.8%.

Year ended Mar 07

For the year ended Mar'07, bank recorded 23% increase in Net interest income to Rs 347 cr and mere 2% increase in other income. Bank reported 18% increase in PAT to Rs.160 cr. NIM's too improved by 8 bps to 3.6%. Advances registered growth of 27% at Rs.7040 cr and deposits grew by 23% to reach Rs.9340 cr; Creditdeposit ratio improved to 75% from 73% during previous year. Despite robust credit growth asset quality improved with Net NPA's lowering down to 0.23% of advances as compared to 0.81% last year. The bank has set a business target of Rs 21,000 cr during F.Y 08 up from Rs.16380 cr during F.Y 07. CAR declined slightly to 14.5% from 14.8% as on March 31, 06.

Company Outlook

Bank has reported decent financials during F.Y 07 and during Q1 FY 08 with robust business growth, good asset quality and satisfactory profitability. Bank is operating on 100% CBS platform. Furthermore bank has shown aggression to grow. We believe that bank has potential to continue registering robust financial performance in line with its peers and could be potential acquisition target post 2009. At CMP of Rs.337, bank's stock is trading at P/E of 11.1x and P/Adj BV of 1.7x on FY 07 EPS and Adj BV respectively.

Bank has outperformed Nifty as well as Bankex. Bank has robust dividend history in the range of 100%-120% since past 4 years and has generated stock return of 56%. Further bank has declared issued bonus during 1995, 2002 and 2006, which indicates banks intention to reward their shareholders. Considering bank's robust financial performance, investor friendly approach and potential acquisition target, we recommend, "Hold" for existing shareholders and accumulate at lower levels.