Despite a slight dip in Net Interest Margin (NIM) from 4.2% to 4.1%, Karur Vysya Bank (KVB) displayed strong Q2 growth, as reported by Emkay Global Financial on Wednesday. The bank's Return on Assets (RoA) and Return on Equity (RoE) reached 1.6% and 17% respectively, demonstrating a prioritization of profitability over expansion.
The bank also reported strong credit growth at 16% YoY and 5% QoQ for the September-ended quarter. Asset quality showed signs of improvement as the Gross Non-Performing Assets (GNPA) ratio fell to 1.7% and Net NPA to 0.5%. Additionally, the Provision Coverage Ratio (PCR), a measure of the funds set aside to cover future potential losses, rose to 73%.
Emkay Global Financial predicts KVB's RoA/RoE to achieve decadal best figures over FY24-26, driven by healthy NIM/fees and contained LLP (Loan Loss Provisions). This prediction is based on the bank's superior returns/capital ratios, its standing in the small-cap banking sector, and management credibility.
In light of these factors, Emkay maintains a BUY rating on KVB. The firm has revised its target price for the bank to Rs 185/share from Rs 178 earlier, rolled forward to 1.2x Sep-25E ABV (Adjusted Book Value). This adjustment reflects Emkay's confidence in KVB's financial performance and strategic direction.
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