Karnataka Bank can be a multibagger: Vijay Kedia
Vijay Kedia first recommended Karnataka Bank in June & October 2016 on the logic that it can be a “three bagger or four bagger”.
The logic was impeccable:
“What are you buying now?
Karnataka Bank. Again, it is very simple theory. All my stocks are very simple to explain. A simple company actually right now have a book to price of only 0.7, I think 0.7 or 0.8. The bank has projected to double its turnover by 2020 and simple yardstick which is going on in the banking industry is if a bank has and it is a private sector bank. A lot of people have this confusion. Usually the yardstick is – if a bank has NIM of 3% plus and GNPA is below 1%, then usually they give a book to price of two, even three and four also.
This year the company will have a NIM of 2.80 and by FY18 it will cross 3% and GNPA will come down below 1% and I expect that maybe in next five years, business will double and book to price will also double. I am expecting it to be a three bagger or four bagger.”
He also recommended Karnataka Bank as the best pick for 2017.
He wrote an elaborate article in Outlook Business explaining all the nuances of Karnataka Bank and why it was a compelling buy.
The stock also enjoyed the rare distinction of being recommended as a “Diwali Dhamaka 2017” stock.
It is worth recalling that Vijay Kedia shared the stage with Porinju Veliyath.
Together, the two stalwarts hand-picked six high-quality mid-cap stocks for us.
Even during his joyous birthday celebrations, Vijay Kedia sent the clarion call that “the worst in small private bank is over” and that the time is ripe to tuck into them.
In my biased opinion, the worst in small private bank is over.
— Vijay Kedia (@VijayKedia1) November 3, 2017
Agreed , Karnataka bank should now command much higher multiples and should go to 300-350 levels atleast
— Sameer (@quantokid) November 4, 2017
Aap ki mooh me Ghee aur Shakkar
I think your comment is for Karnataka Bank.
— vikas (@vikassujith) November 3, 2017
Now karnatak bank is good for buy for short to long term
— vishal shelke (@shelkevishal) November 3, 2017
Vijay Kedia’s view with regard to private banks was shared by eminent luminaries such as Nischal Maheshwari of Edelweiss Securities & Tushar Pradhan of HSBC Global AM.
Karnataka Bank is a “sitting duck multibagger”: Sanjay Dutt
Sanjay Dutt of Quantum Securities conferred the prestigious title of “sitting duck multibagger” upon Karnataka Bank.
He explained that on a price to book comparison (with Yes Bank), other private banks like Karnataka Bank, Karur Vysya Bank and Federal Bank are quoting at “dirt cheap” valuations even though they are doing the same business as that of Yes Bank.
“The discount between a Yes Bank and a Karnataka Bank is just so stark that I am surprised that no one is tempted to really buy into a Karnataka Bank and a Federal Bank,” he said.
He also emphasized that the financial services sector presents a “phenomenal opportunity” in the mortgage business, commercial finance business, private sector banking etc.
“It is a sitting duck right now,” he said implying that these are fail-safe stocks that can be bought without a care in the World.
Some knowledgeable observers also claimed that Karnataka Bank is on the path to becoming the “next RBL Bank” and showering mega multibagger gains upon us.
Excellent Comparison between Karnataka Bank And RBL Bank
Reality Vs Hype
Value Investing Vs Chasing momentum pic.twitter.com/4Lxtzn8tu3
— Rishi Bagree ?? (@rishibagree) April 11, 2017
(Vijay Kedia with POTUS lookalike)
Aggressive buying made Karnataka Bank the “crown jewel” of Vijay Kedia’s portfolio
Vijay Kedia never advises us to do anything that he is not willing to do himself.
So, he followed his advice to us to buy Karnataka Bank by buying massive truckloads of the stock for his own portfolio.
|As of||Nos of shares held|
|30th June 2016||19,02,108|
|30th September 2016||25,02,108|
|31st December 2016||31,36,703|
|31st March 2017||56,60,703|
|30th June 2017||56,60,703|
|30th September 2017||56,60,703|
At the peak, Vijay Kedia’s holding of 56,60,703 shares in Karnataka Bank translated into an investment of nearly Rs. 100 crore.
No doubt, the stock was a crown jewel of the portfolio.
Interesting Bulk Deals..
Karnataka Bank: Vijay Kedia buys 15 lk shares at Rs 122
IIFL: IDFC Bank buys 1.5 cr shares at Rs 317
— Ayesha Faridi (@AyeshaFaridi1) February 7, 2017
Stock falls from grace
Vijay Kedia has been periodically voicing his disappointment about Karnataka Bank not being able to get its act in order.
nos.from @ktkbankltd r disappointing.They behaving like a public bank.Their commentary says things sud improve hereafter. Hope for the best
— Vijay Kedia (@VijayKedia1) January 24, 2017
Gaya @VijayKedia1 sir apka KTK BANK. Multibagger jaisa behave nh krta h yeh. ?
— Mohit Kejriwal (@aggarwal__mohit) December 6, 2017
True. It seems some banks still have unsolved NPA issues. https://t.co/DczDbQV8Rb
— Vijay Kedia (@VijayKedia1) December 6, 2017
He finally pulled the plug on the stock by selling a chunk of 23,60,703 shares in the period from October 2017 to December 2017.
The holding as of December 2017 stands at 33,00,000 shares.
The present holding is not known.
He confirmed the sale in the latest interview to ET and also to his army of followers on twitter.
Hi Mr Vijay! Would like to know what was the reason to part away from Karnataka Bank? Thanks..
— ronny (@ronnyvercetti) March 15, 2018
Read my old tweets. You will get your reply. https://t.co/yKTD57046D
— Vijay Kedia (@VijayKedia1) March 16, 2018
(Fall from grace: 6 month downward trajectory)
Baffling state of affairs because experts recommend buy with 100% upside potential
Vijay Kedia’s loss of confidence in Karnataka Bank is quite baffling because experts have opined that the time is ripe to buy the stock owing to “stellar Q3FY18 results” and “Strong loan growth and profitability”.
Axis Securities’ recommendation reads as follows:
“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%.
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 has echoed these sentiments in its research report:
“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 has also come out with all guns blazing in favour of Karnataka Bank:
“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.”
In fact, the target prices of Rs. 195, 213 and 240 projected by Axis Securities, Choice India and Centrum means that hefty gains of up to nearly 100% from the CMP of Rs. 121 are waiting to be harvested.
If junkyard PSU Banks are a good buy now, is not Karnataka Bank a better buy?
It is worth noting that in the wake of the NPA fiasco crises, which has sent PSU Bank stocks plunging to hitherto unknown levels, experts have advised us to turn contrarian and aggressively buy the stocks.
Prominent amongst these experts are Rahul Saraogi of Atyant Capital and Shyam Sekhar (see Get Ready For Multi-Bagger Gains From PSU Bank Stocks).
Essentially, the theory is that the crises that these banks have undergone will force them to clean up the mess and set their houses in order.
Logically, the same should apply with greater force to Karnataka Bank because it is also trading at trough valuations which are close to those of the junkyard PSU Banks.
Prima facie, in the wake of Vijay Kedia’s no-confidence motion to Karnataka Bank, it is better if we lie low for some time and wait for the dust to settle. If the stock price tumbles further and/or if the fundamentals improve dramatically, we can consider tucking into the stock in a slow and steady manner!