Karnataka Bank Research Reports By Centrum, Axis Securities & Choice India

Axis Securities’ recommendation

Q3FY18: Strong loan growth and profitability, albeit high credit costs

Karnataka Bank (KBL) reported a robust operational performance in Q3FY18 with 20%YoY jump in NII supported by NIMs (up 25bps) and loan growth (24% YoY). Rise in other income by 46% led to better PAT even as higher provisioning (though lower from Q2FY18) continued. Credit costs have been higher in the last couple of quarters (1.5% in Q3FY18).

Asset quality improved on decline in G/NNPAs and lower slippage ratio of 0.5%. Capital position remains stable with Tier I of 11.1%.

Outlook

Q3FY18 results were strong, both balance sheet and profitability wise, reiterating the transformation journey that the bank has envisaged.Pressure on provisions will continue in the next couple of quarters. Loan growth is expected to be at ~25% with NIM sustaining at ~3%.Management focus is on getting 1% market share and growing balance sheet 2x every three years. High retail share (~47%) provides comfort.We retain our buy rating while adjusting for higher provisioning in FY18E and FY19E and assign P/ABV of 1x FY20E arriving at a target price of Rs 195/-.

Choice India recommendation

Karnataka Bank Ltd. (KBL) has reported stellar performance for Q3FY18 above our expectations, clocking 24% advances growth with C/D reaching at 76.9%. NII grew by ~20% mainly driven by declined interest cost and bottom line rose by 27.5% YoY to Rs873.8 mn. Strong growth was reported on business as well as financial fronts while assets quality witnessed improvement with declined slippage and 16 bps QoQ reduction in GNPA ratio to 3.97%. KBL is likely to emerge far stronger over the next few years and its business growth to be driven by management’s focus on increasing low cost deposits (CASA deposits), improving C/D ratio and shifting the business mix toward the retail and SME segments. We maintain our ‘BUY’ rating on the stock with a potential price of Rs213 per share.

Centrum recommendation

Growth momentum accelerates; reiterate BUY

We retain Buy on Karnataka Bank (KBL) and revise our TP upwards to Rs240 (valued at 1.3x FY20E ABV). Q3’18 results surprised on upside with

a) strongest ever loan growth (24.1% YoY / 8% QoQ);

b) further expansion in margins (3.04%; 25bps YoY)

c) decline in slippages-run rate (1.9% annualised) and

d) stressed asset portfolio down to 7%. Commentaries on each of the above key parameters remain encouraging and we have factored the same into our estimates. This is even as near-term earnings are set to remain under-pressure following accelerated provisions.

We have introduced FY20 estimates and see our RoE’s inch further to 13.2% levels.

Capital position remains strong; valuations at 1x FY19E / 0.9x FY20E ABV remain undemanding.