1. KARUR VYSYA BANK:
Banking AND Financial services
Karur Vysya Bank (KVB) reported better operating performance delivering a PAT of Rs.138cr for
Q4FY16 (7% YoY) against Rs. 129 cr YoY. Loan growth improved to 8% YoY in Q4 FY16 as against
6% YoY in Q3 FY16. During the current quarter, cost to income for the bank has increased to 60%
against 55% YoY (48% QoQ). Consequently, NIMs improved during the same period by 8 bps QoQ to
3.55% compared to 3.47% seen in the previous quarter. Also, asset quality improved, as stressed assets,
as % of loans, declined by 320bps QoQ to 4.7% of loans.
Outlook:
We like the bank considering its diversified asset book and gradual improvement in liability franchise,
inclined towards retail deposits. Also, bank reported loan growth at 9% YoY which is at a six-quarter
high although growth in gold loans (16%of loans) is still weak. KVB is currently trading at 1.2x FY17
adj. P/ABV. We value the bank at 1.2x FY18E adj. P/ABV. We upgrade to BUY rating on the stock with
a target price of Rs. 529 implying 14% upside.
Key Highlights
Credit Growth improved QoQ: KVB’s advances growth improved in Q4FY16, expanding by
8% YoY from 6% in Q3 FY16 to Rs. 39,476 cr. This was mainly on account of 8% YoY growth in
commercial portfolio (32% of loan book) and mild growth of 3% YoY in the corporate segment.
The management attributes this to its cautious approach in the wake of cleaning up its balance
sheet, and Slowdown in overall economic activities. The management's expects a pick-up in loan
growth to 15% in FY17E. It highlighted that gold/corporate loan book would be under pressure till
the overall economy revives. We have factored loan growth of 12% CAGR from FY16-FY18E
lower than the historical average of 25%.
Stress assets declined led by sale to ARCs: Asset quality trends for the bank had been volatile
with fresh slippages of around 6% of loans in Q4 FY16 which was spread across various accounts
and industries. The bank also reported fresh restructuring of Rs.34 cr in Q4FY16 vs 52 cr in Q3
FY16which resulted standard restructured advances to reduce to Rs.1,355 cr i.e. ~3.4% of net
advances. Stressed assets, as % of loans, declined by 320bps QoQ to 4.7% of loans. The bank sold
1.5% of loans in the current quarter and has reported a loss of 1.3% of loans (Rs.500 cr), which is
expected to be amortized across the next seven quarters.
Margins improved as well as Cost / Income ratio: For the current quarter, reported NIMs
improved by 8 bps to 3.55% on QoQ basis largely on account of fall in Cost of Funds. The cost of
funds fell by 55 bps to 6.88% QoQ higher than fall in the yield on advances by 31bps QoQ to
11.31%. However, Cost to Income ratio for the bank is slowly cooling off from high of 55% in
FY14 to 50% as on FY16 on the back of lower increase in employee expenses.

2. CHARTS:

4. FINANCIAL SUMMARY:
Y/E PAT EPS Change P/E BV P/BV Net NPA Adj BV P/Adj.BV RoE RoA
Mar (Rs. Cr) (Rs.) YoY (%) (x) (Rs.) (x) (%) (Rs.) (x) (%) (%)
FY15 464 39.9 5 11.6 349 1.3 0.78 326 1.4 12 0.9
FY16 568 46.6 17 9.9 375 1.2 0.56 358 1.3 13 1.0
FY17E 659 54.2 16 8.5 414 1.1 0.57 394 1.2 14 1.1
FY18E 767 63.1 16 7.3 461 1.0 0.47 441 1.0 14 1.1
ResultsUpdate:
Karur Vysya Bank Quarterly Yearly
Fig in Rs.Cr Q4FY16 Q4FY15
Y-o-Y
Q3FY16
Q-o-Q
FY 16 FY 17E FY 18E
Ch (%) Ch (%)
Interestincome 1370.2 1327.8 3.2 1352.4 1.3 5443.4 5941.4 6697.3
Interestexpended 897.5 930.4 -3.5 904.2 -0.7 3662.0 4003.9 4501.8
Net interest income 472.6 397.4 18.9 448.2 5.5 1781.4 1937.5 2195.5
NII as a % of Net income 74.0 68.8 - 72.2 - 71.6 71.4 72.0
Other income 166.1 179.8 -7.6 172.8 -3.8 706.8 777.5 855.3
Total income 1536.3 1507.6 1.9 1525.1 0.7 6150.2 6718.9 7552.6

5. Net totalincome (3+4) 638.8 577.2 10.7 621.0 2.9 2488.2 2715.0 3050.8
Operating expenses 379.9 317.2 19.8 295.4 28.6 1252.8 1357.5 1525.4
Personnel exp 139.3 157.8 -11.7 126.6 10.1 547.4 610.9 732.2
Other exp 240.6 159.4 51.0 168.9 42.5 705.4 746.6 793.2
Profitbefore tax & prov. 258.9 260.0 -0.4 325.6 -20.5 1235.4 1357.5 1525.4
Provisions & contingencies -12.6 194.8 -106.5 92.7 -113.6 323.8 350.2 352.4
PBT 271.5 65.2 316.6 232.8 16.6 911.6 1007.3 1173.0
Tax 133.5 -64.0 -308.6 80.0 66.9 344.0 348.5 405.9
Profit after tax 138.0 129.2 6.8 152.8 -9.7 567.6 658.8 767.1
Extra ordinary Item 0.0 0.0 - 0.0 - - 0.0 0.0
ReportedPAT 138.0 129.2 6.8 152.8 -9.7 567.6 658.8 767.1
Equity 121.9 121.6 - 121.9 - 121.9 121.6 121.6
Cap. adequacy ratio (Basel-II) 12.17 14.62 - 12.90 - 12.17 11.80 13.80
EPS (Rs) 11.3 11.8 -4.1 12.5 -9.6 46.6 54.2 63.1
NIM (%) 3.6 3.2 - 3.5 - 3.4 3.3 3.3
CASA (%) 23.3 22.0 - 23.4 - 23.3 23.0 24.0
Gross NPA (%) 1.3 1.9 - 1.9 - 1.3 1.5 1.3
NetNPA (%) 0.55 0.78 - 0.96 - 0.55 0.60 0.50
Provisional Coverage (%) 82.5 75.2 - 75.2 - 82.5 72.7 72.7
NII/ Operating expenses 1.2 1.3 - 1.5 - 1.4 1.4 1.4
1 JAN 2017
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