Aggressive purchase of Karnataka Bank shows Vijay Kedia’s conviction level
The aggressive manner in which Vijay Kedia has been buying the stock of Karnataka Bank is a clear giveaway of his high conviction level in the Bank.
On 30th June 2016, Vijay Kedia held 19,02,108 shares of Karnataka Bank.
By 30th September 2016, the holding had increased to 25,02,108 shares.
As of 31st December 2016, Vijay Kedia has amassed 31,36,703 shares.
The holding as of 31st March 2017 is not known.
The holding is worth Rs. 46 crore at the CMP of Rs. 146.
Why will Karnataka Bank be a 3x or 4x multibagger?
Vijay Kedia explained in the simplest possible terms why he expects Karnataka Bank to be a 3x or 4x multibagger stock:
(i) The Bank is quoting at rock-bottom book to price valuations of 0.7 or 0.8;
(ii) The Bank has projected to double its turnover by 2020;
(iii) The Bank is a private sector one though quoting at the valuations of a PSU;
(iv) Banks with NIM of 3%+ and GNPA of below 1% usually quote at book to price of 2x, 3x or even 4x.
(v) Karnatka Bank’s NIM in FY 2016-17 is about 2.80. By FY18, the NIM will cross 3%. The GNPA will come down below 1%;
(vi) In the next five years, Karnataka Bank’s business will double. The book to price will also double.
Applying this logic, Karnataka Bank is expected to be a three bagger or four bagger in the foreseeable future, Vijay Kedia said with his customary wide smile.
Best pick for 2017
Vijay Kedia has declared that Karnataka Bank is his “Best pick for 2017” in Outlook Business.
“I have invested in Karnataka Bank as it is the most technology savvy private sector bank available at PSB valuations,” he said.
The investment rationale was summed in exceptionally clear language:
“The bank is targeting to have a NIM of over 3% by March 2020 with gross NPAs and net NPAs projected to be less than 1.5% and 0.6% respectively. More importantly, it plans to double its turnover to 180,000 crore over the next three years. Going by KBL’s recent performance and change in the approach of management, we feel that it will achieve its target well ahead of its own projections. Incidentally, at the current market price, the stock is available at a price to book value (P/B) of 0.70x. Normally, banks with NIMs in excess of 3% with low NPAs gets valued at 2-3x P/B. With the improvement in the overall performance and focus on improving CASA, the prospect for KBL looks more than bright.”
(Vijay Kedia poses with the magnificent Audi A8 Luxury car)
“Sitting duck” multibagger with 5x/ 10x potential: Sanjay Dutt
Sanjay Dutt of Quantum Securities is known to be an old-school investor. He is very strict about valuations and the risk-reward profile.
“I am very clear about my risk reward profile as an investor. I do not buy anything till I do not find value and so I do not get taken in by fads and fancy,” he declared in a stern tone in his latest interview.
Sanjay Dutt has described the entire financial services sector as a “phenomenal opportunity” and a “sitting duck”.
He heaped rich praise on Karnataka Bank (and Lakshmi Vilas Bank and Karur Vysya Bank) and called them “dirt cheap”. He also referred to them as being “gems sitting in there which over three-five years time would do great if you get them right”.
“That’s where you are going to find the 5x and 10x in the financial sector,” Sanjay Dutt added with immense confidence in his voice.
Ambitious business plan unveiled
At this stage, we have to note that Karnataka Bank has announced an ambitious business plan for FY 2017-18 which includes taking the business turnover to 1,10,000 crore.
This is what the Bank has said:
“The growth outlook for 2017-18 is positive and we should be able to encash all the growth opportunities to take the business turnover to a new high of Rs. 1.10 lakh crore”.
It was also stated that the bank intends to open 35 new branches, including nine financial inclusion branches, to take the tally to 800 by March 2018. As on March 31, the bank had 765 branches across the country. It is also proposed to take the tally of ATMs to 1,450, from the present 1,380.
E-lobbies and mini e-lobbies are planned to be increased to 150, from the present 110.
It is obvious that this ambitious business plan will set the cash registers ringing and that the Bank will make hefty profits.
STOCKS TO WATCH : Karnataka Bank targets ₹1.1 lk cr biz this fiscal; cuts MCLR by 25-55 bps
— ET NOW (@ETNOWlive) April 5, 2017
Buy recommendations of Centrum, HDFC Sec, Religare and AUM Capital
Centrum has recommended a buy on the basis that the Bank warrants a re-rating:
“We initiate coverage on Karnataka Bank (KBL), with a Buy rating and TP of Rs170. This franchise, contrary to market perception, merits consideration for its inherent strengths as evident in its business ratios. We expect the bank’s efforts to further enrich these ratios, which will push up RoA / RoE to 1.0% / 14.4% by end-FY19, best ever since FY09. Banks with improved earnings quality, higher credit growth and efficient capital consumption tend to graduate into higher valuation multiples and we see a similar kind of re-rating due for KBL. BUY.”
HDFC Sec has recommended a buy after systematically setting out its virtues:
•Accelerated branch addition
• Increasing share of CASA deposits
• Retail portfolio and MSE segment to drive growth
• NIMs should expand gradually from current levels
• Asset quality likely to improve
Religare has opined that Karnataka Bank’s strong regional presence, conscious decision to cut back on corporate credit, increased focus on retail loans and stable margins augur well for its earnings outlook going forward.
AUM Capital has recommended a buy on logic that is similar to what has been stated before, namely, that the Bank has a good future ahead of it.
The unanimous bullishness of Vijay Kedia and of the other leading experts does suggest that Karnataka Bank may indeed be the “sitting duck” multibagger stock that we have always been looking for!