Multibagger Stock Pick – Karur Vysya Bank

Karur Vysya Bank, popularly known as KVB, It is a privately held Indian bank, headquartered in Karur in Tamil Nadu, one such endeavor, was set up in 1916 by two blokes. The Bank had a Branch Network of 473 and an ATM Network of 1000 in 13 States and 3 Union Territories as on ‘03 Nov 2012′.

KVB offers several deposit and loan products, tailor-made to cater to the specific needs of customers. The bank offers NRE / FCNR deposits and remittance services to NRIs. The bank offers all types of general insurance policies through a tie-up with M/s Bajaj Allianz General Insurance Company. The bank offers life insurance policies through a tie-up with M/s Birla Sun Life Insurance Company. The Bank distributes the Mutual Fund products of UTI, SBI MF, Reliance MF, Sundaram BNP Paribas MF, Birla Sunlife MF, Franklin Templeton MF and LIC MF. The Bank is a Depository Participant through NSDL and opens demat accounts ASBA facility available. Off-line and on-line trading facility is available to the demat customers enabled through a tie-up with M/s Religare Securities Ltd and M/s IDBI Caps respectively. It is one of the authorized banks to open accounts under the New Pension Scheme. The Bank POS terminal facility is available at merchant establishments. The Bank also sells pure 24 carat Assay certified Gold Coins and bars and silver coins and bars. It ties up with SBI Cards for a co-branded credit card.

Have added 81 new branches in FY12, it has a target to reach 540 branches, pan-India, by March 2013, which means it will add about 12 branches per month going forward for the next 6 months or open one new branch every third day. This retail branch expansion will help the bank improve CASA as well as fee based income, improve its earnings.

Seeing that on 30th September 2012, its equity share capital stood at Rs. 107.18 crore, of which, 3.12% was held by promoters, 28.54% stake was held by 75 FIIs and 10.91% by 49 DIIs and balance 57.43% by public shareholders, including 3.45% by RJ. In support of FY12, bank posted interest income of Rs. 3,270 crore and total income was Rs. 3,621 crore. Net profit for the year stood at Rs. 502 crore with EPS of Rs. 46.84, of which, 30% was the dividend payout ratio at Rs. 14 per share. Net interest margin (NIM) for FY12 was 3.08% with Return on Assets (RoA) for the full year at 1.56%.

The bank has been improving its financial performance, by improving CASA ratio, recovering NPAs, improving fee based income and opening new branches to have a pan-India presence. Intended for H1FY13, bank reported total income of Rs. 2,233 crore including interest earnings of Rs. 2,044 crore. PAT for the first half of the year stood at Rs. 279 crore, resulting in EPS of Rs. 26. As of 30th September 2012, shareholders funds stood at Rs. 2,987 crore, leading to BVPS of Rs. 279. This discounts the current market price by a PBV multiple of 1.7 times.

Throughout Q2FY13, bank has strengthened its financial performance, with assets quality improving from the past 3 months as well as 6 months. Gross NPAs, which stood at Rs. 377 crore as of 30th June 2012 declined to Rs. 323 crore as of 30th September 2012, decreasing gross NPA ratio to 1.26% from 1.53% sequentially. This improvement in asset quality is very noteworthy given that concern on bad loans has been mounting on the entire banking sector over the past few quarters. Peers such as South Indian Bank and Karnataka Bank have shown significant deterioration in asset quality while declaring their half yearly results.

KVB net NPAs have also contracted to Rs. 80 crore (0.32%) as of end of Q2FY13, from Rs. 92 crore (0.38%), at the end of Q1FY13. Intended for Q2FY13, bank reported total income of Rs. 1,123 crore and PAT and EPS of Rs. 133 crore and Rs. 12.39 respectively. Its deposits and advances stood at Rs. 33,444 crore and Rs. 25,394 crore respectively as of 30th September 2012. NIM during Q2 was Rs. 3.06%.

Since 31st March 2013, the BVPS is expected to be Rs. 306 and expected EPS for FY13 will be close to Rs. 53. This translates into PBV multiple of 1.55x and PE multiple of 8.9 times. We Bet the stock to pick near 465 levels for stock target price 575 in the a time period 9-12 Months.