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Sunday, December 13, 2009

Karur Vysya Bank Ltd:Future growth prospects and outlook,why its moving?Target price?prospects and buy/sell/hold?

Scripscan:Karur Vysya Bank Ltd

Story:At a market cap of just over Rs 2,000 crore, Karur Vysya Bank features among the smallest bank in India. However, the bank is in the top league in More Picturesterms of efficiency and financial strength.The bank primarily operates in the South India. But, it has been expanding its reach in the other parts of the country as well. At the end of FY 2009, the bank had a network of 312 branches. The bank has recently indicated that it aims to touch the mark of 350 branches by the end of current financial year. This shows the pace at which the bank is expanding. A wider branch network will help the bank in increasing the base of low cost current account and savings account deposits, which in turn will help it in lowering the cost of funds.The bank has consistently reported net interest margin (NIM) in excess of 3% in the last nine financial years. Only a handful of Indian banks have managed to achieve this feat. While, Indian banks have posted an average return on assets (RoA) of 1% in FY 2009, Karur Vysya Bank has reported 1.5% RoA. This shows that the bank ranks very high in terms of utilisation of its assets.The bank performs well on the quality of the assets as well, as net non-performing assets (NPA) formed just 0.25% of net advances at the end of FY 2009. Only three banks - Punjab National Bank, Andhra Bank and Indian Bank -reported better asset quality than Karur Vysya Bank. And asset quality has further improved in FY 2010, as net NPA formed 0.22% of net advances at the end of Sept'09 quarter.The bank's performance in the current fiscal has been commendable. It has managed to grow its loan book at much faster rate than the industry. Its loan book was up by 23.2% year-on-year at the end of Sept'09 compared to just 13% growth in the gross bank's credit in the same period.Even more commendable is the fact that its net interest income has grown by 28.6% yo-y in the six months ending Sept'09. Net interest income is calculated by deducting interest expense from interest earned. As interest rate shot up last year, banks witnessed shrinkage in spreads. As a result, most of the banks have reported flat net interest income in this fiscal so far. In such a situation, 29% growth in net interest income shows Karur Vysya Bank's resilience in tough times, which has helped it in protecting its spreads. The bank posted 74% growth in its profits in the first half of the current fiscal.The stock is trading at 1.5 times its book value. Compared historically, the stock is trading close to all-time high valuations. However, given its pace of growth and branch expansion plans, it seems that the current valuations do not fully discount its growth potential.Moreover, at current prices, the dividend yield stands at 3.2%. So, even conservative investors should find investment worthwhile in this stock. Its valuations are comparable to that of its peers like Federal Bank, City Union Bank and South Indian Bank. However, its dividend yield is highest among its peers. This shows that Karur Vysya Bank provides a unique combination of reasonable valuations, high dividend yield and growth potential.A good buy for a perspective of 3 to 5 years horizon.

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