Rakesh Jhunjhunwala, the Badshah of Dalal Street, has a few stocks that are his all-time favourites. These are stocks that are closest to his heart and will be held for a lifetime.
Karur Vysya Bank belongs to this exclusive and elite club. In all his interviews, the Badshah never tires of reminiscing about how he bought a truckload of the stock way back in 1993 for a paltry consideration of Rs. 50 lakhs and how it is worth a fortune of Rs. 200+ crore today.
Rakesh Jhunjhunwala, in an interview to ET in October 2012, explained why he was so fond of Karur Vysya Bank. He said:
“… in Karur Vysya Bank, maybe, I think, I had invested 50 lakh in 1993, now I think it is 200 crore. I see now it is growing at 18-20 per cent. It has a good management, is rewarding shareholders, has a good yield. I think 400 is the price and 16 is the dividend. So four rupees, a four percent yield…. Banking will be 7-8 per cent of my portfolio”.
Now, in a stroke of good luck, Karur Vysya Bank has come into the radar of ace stock picker Daljeet Kohli. After carefully studying the prospects and risk factors of Karur Vysya Bank, Daljeet has recommended a buy. He has given several reasons for his recommendation. He points out that KVB has delivered robust growth in loan book at 27% CAGR in FY09-14 and book has increased by 3.3x over the same period led by significant increase in branch network to 588 from 312 in FY09. The recovery in the economy and the recent branch expansion will yield results in the near future.
Daljeet also explains that Karur’s asset quality has stabilized in FY14 with Gross / Net NPA of 0.82% / 0.41% in FY14, down from 0.96% / 0.37% in FY13 with a healthy provision coverage ratio of 75%. He also exudes confidence that the ROEs will remain stable despite capital raised by the QIP.
As to the valuations, Daljeet foresees a target price of
Rs 620, which is about 1.7x FY16E ABV. However, knowing Daljeet’s penchant for laying down “conservative” price targets, we shouldn’t be surprised if this price target gets taken out in no time.