BUY. KARUR VYSYA BANK LTD Result Update: Q1 FY 13. CMP Target Price Sep 22 nd, 2012 SYNOPSIS

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1 BUY CMP Target Price KARUR VYSYA BANK LTD Result Update: Q1 FY 13 Sep 22 nd, 2012 ISIN: INE036D01010 Stock Data Sector Banking BSE Code Face Value / Div. Per Share wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years FY12A FY13E FY14E Net Income NII Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph BSE SENSEX KARUR VYSYA BANK LTD SYNOPSIS KVB is one of the earliest banks in the country to achieve full networking of its branches under Core Banking Solutions, offering services through alternate delivery channels. Bank s Capital Adequacy Ratio registered at 14.72% as on Current and Savings (CASA) deposits grew by 30.88% to Rs million from Rs million as at end of June Net profit for quarter increased by 25.06% on Y-O-Y basis to Rs mn compared to Rs mn for the corresponding quarter in the previous fiscal. Total income of the bank rose to Rs mn from Rs mn showing a rise of 44.37% year-on-year. The Bank aims to reach a business level of Rs million by end-march 2013 by expanding its network by around 100 branches and 400 ATMs. The Bank has crossed the business mix of Rs million. Net Income and PAT of the company are expected to grow at a CAGR of 33% and 19% over 2011 to 2014E respectively. Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Karur Vysya Bank Ltd Indian Overseas Bank Axis Bank SBI

2 Investment Highlights Results updates- Q1 FY13, The company s net profit jumps to Rs million as against Rs million in the corresponding quarter ending of previous year, an increase of 25.06%. Revenue for the quarter rose 44.78% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter, registering 17.76% an increase over previous year period. Net Interest Income is Rs millions as against Rs millions in the corresponding period of the previous year. Months June-12 June-11 % Change Net Income % PAT % EPS % Segment Revenue Particulars (Rs.mn.) Q1 FY13 Corporate/Wholesale Banking Treasury Operations Retailing Banking Other Banking Operations Total

3 Latest Updates Net profit for the first quarter increased by 25.06% on year-on-year basis to Rs mn compared to Rs mn for the corresponding quarter in the previous fiscal. The bank s operating profit for the first quarter rose by 22.64% and stood at Rs mn from Rs mn in the corresponding period in Net Interest Income grew by 23.9% year-on-year and stood at Rs mn as against Rs mn for the corresponding period. The Bank has crossed the business mix of Rs million. The deposits of the bank were up by 30.88% at Rs mn while gross advances increased to Rs mn reflecting a year-on-year growth of 32.89%. Total income rose to Rs mn from Rs mn showing a rise of 44.37% year-on-year. Bank s Capital Adequacy Ratio registered at 14.72% as on The bank is operating through 454 branches and 900 ATMs as on The Bank aims to reach a business level of Rs million by end-march 2013 by expanding its network by around 100 branches and 400 ATMs. CRISIL has assigned A1+ rating for the Certificate of Deposit Programme of 20 billion of the Bank. Company Profile The Karur Vysya Bank Ltd., the bank that carries with it a tradition of 96 years and yet is young enough to adapt itself to the rapidly changing scenario in the banking industry. The organizational structure has undergone major changes with verticalisation as Business Strategy Group, Operations Group, Risk, Inspection & Audit and HR. The Business Strategy Group is further organized into business segments, such as Personal Banking, Commercial Banking, Corporate & Institutional Banking, International Banking and Treasury & Funds Management. KVB is one of the earliest banks in the country to achieve full networking of its branches under Core Banking Solutions, offering services through alternate delivery channels. Products & Services Personal Banking The bank offers personal banking needs. Whether it is deposits, loans, insurance, demat accounts or mutual fund investments, our personal banking services provide to customers with a gamut of solutions. The range of technology backed services like our internet banking, mobile banking, utility bill payment, rail/air ticket booking, online and offline share trading facilities help them to manage all your personal finances from the comfort of own home or office.

4 Corporate Banking Karur Vysya Bank provides corporate financial needs and full range of online services help the customers or clients to make corporate needs easier and less cumbersome to manage. Current Accounts Current Accounts may be opened by proprietary concerns, Partnership firms, Joint Hindu Families, Private and Public Limited Companies, Public Corporations, Societies, Clubs, Associations or Trusts, Executors & Administrators, Temples and Government Departments. General Insurance Karur Vysya Bank has tied up with Bajaj Allianz General Insurance Company, one of India's leading private insurance companies, to provide with a full range of general insurance products. It covers all risks while at work or during travel or simply as a safeguard against business properties and assets. MSME The Micro, Small and Medium Enterprises (MSME) sector has acquired a prominent place in the growth of the Indian economy. The role of Micro, Small and Medium Enterprises (MSME) in the economic and social development of the country is well established. Lending to the MSME sector has acquired significance with the enactment of Micro, Small and Medium Enterprises Development Act in the year 2006 [MSMED Act, 2006] by the Government of India to have a focused and balanced growth of Micro, Small and Medium Enterprises. KVB MSME loan products provides for facility granted to Service Industries, obtention of stock statements is waived. However receivables statements, with age-wise classification shall be obtained on a monthly basis. However such receivables statement, duly certified by a Chartered Accountant, shall be obtained once in a quarter. KVB MSME Products KVB MSME Cash KVB MSME Term Loan KVB MSME Vendor Bill Discounting KVB MSME EXPO KVB MSME Standby Term Loan KVB Transport Plus

5 Agricultural Savings Account Karur Vysya Bank endeavors to take care of all the needs of agriculturists. The bank provides a gamut of services including ID cards which provide credit facilities so that can receive financial assistance to ensure that business functions smoothly. From vehicle loans that finance the purchase of tractors, tillers and harvesters; to general loans which fund daily agricultural expenditure and personal expenses, the schemes have been designed to ensure that sunshine or rain, have bumper crop every year. Vehicle Loans Two Wheeler Green Harvester ID Cards for Credit Green Card/Green Card Plus (Kisan Card) This loan is designed to give agriculturists in rural, semi-urban and urban areas financial aid for working capital and short term credit requirements. To avail of this loan, the agriculturists have to be the primary land owner. KVB Green Card Loans provide them with short term solutions so that they can ensure the smooth functioning of your daily agricultural activities. Features and Benefits Available to agriculturists in rural, semi-urban and urban areas. Provides assistance to individual farmers who are owners and cultivators of land. Serves as working capital and short term credit.

6 Financial Highlight Balance Sheet (A*- Actual, E* -Estimations & Rs. In Millions) FY11 FY12 FY13E FY14E CAPITAL AND LIABILITIES Capital Reserves and Surplus Deposits Borrowings Other Liabilities and Provisions Total ASSETS Cash and Balances with Reserve Bank of India Balances with Banks and Money at Call and Short notice Investments Advances Fixed Assets Other Assets Total Annual Profit & Loss Statement for the period from 2011 to 2014E. Value(Rs.in.mn) FY11 FY12 FY13E FY 14E Description 12m 12m 12m 12m Net Income Other Income Total income Interest Expended Net Interest Income Operating Expenses Operating Profit Provisions and Contingencies Profit Before Tax Tax Profit After Tax Equity Capital Reserves Face Value (Rs.) EPS

7 Quarterly Profit & Loss Statement for the period from 31 Dec 2011 to 30 Sep 2012E Value(Rs.in.mn) 31-Dec Mar Jun Sep-12E Description 3m 3m 3m 3m Net Income Other Income Total income Interest Expended Net Interest Income Operating Expenses Operating Profit Provisions and Contingencies Profit Before Tax Tax Profit After Tax Equity Capital Face Value (Rs.) EPS Ratio Analysis Particulars FY11 FY12 FY13E FY14E EPS (Rs.) Operating Profit Margin (%) 27.08% 22.19% 20.97% 20.36% PAT Margin (%) 18.74% 15.34% 14.03% 13.45% P/E Ratio (x) ROE (%) 19.45% 18.53% 18.16% 17.40% ROCE (%) 2.19% 1.97% 2.15% 2.22% Debt-Equity Ratio Book Value (Rs.) P/BV (x)

8 Charts Outlook and Conclusion According to the RBI's 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', September 2011, Nationalized Banks, as a group, accounted for 52.2 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.8 per cent. At the current market price of Rs , the stock P/E ratio is at 7.18 x FY13E and 6.19 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs and Rs respectively. Net Income and PAT of the company are expected to grow at a CAGR of 33% and 19% over 2011 to 2014E respectively. On the basis of Debt Equity ratio, the stock trades at x for FY13E and x for FY14E. Price to Book Value of the stock is expected to be at 1.30 x and 1.08 x for FY13E and FY14E respectively. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment.

9 Industry Overview The Rs 64 trillion (US$ 1.17 trillion) Indian banking industry is governed by the Banking Regulation Act of India, 1949 and is closely monitored by the Reserve Bank of India (RBI). The growth in the sector has been more qualitative than quantitative wherein the market regulators got liberal in policy formulations realising the importance of private and foreign players over the past decade. Hence, liberal policies, Government support and huge development in other economic segments have made the Indian banking industry more progressive and inclusive with regards to the global banking standards. Public sector banks account for 70 per cent of the Indian banking assets. But there lies immense opportunity for growth for global players, private bankers and investors as there is still a huge unbanked population in India that needs to be tapped. Moreover, the emergence of online banking has given Indian banking landscape a makeover, wherein mobiles and Internet have proven to be important banking channels. The Government has also been focussing on expanding the reach of automated teller machines (ATMs) to every nook-and-corner of the country. According to data from National Payments Corporation of India, the number of ATMs in the country had reached 98,025 by the end of April 2012 of which about 70 per cent of the deployment has been in urban areas. Public sector banks have also decided set-up 60, 000 more ATMs across the country over Key Statistics The RBI has recently released its 'Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks', December 2011, which states that Nationalised Banks, as a group, accounted for 52.1 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.9 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.9 per cent,.8 per cent, 4.5 per cent and 2.9 per cent, respectively. Nationalized Banks held the highest share of 51.2 per cent in the total gross bank credit followed by SBI and its associates at 22.5 per cent and New Private Sector Banks at 13.8 per cent. Foreign Banks, Old Private Sector Banks and Regional Rural Banks had relatively lower shares in the total bank credit at 5.2 per cent, 4.8 per cent and 2.5 per cent, respectively. Banks' credit grew 1.2 per cent in April-June 2012, while deposits expanded by 1.9 per cent, according to another statement released by RBI. The RBI projects credit growth at 17 per cent and deposit growth at 16 per cent in Banks' incremental credit-deposit ratio, which shows fresh demand for loans in proportion to deposits, stood at 48 per cent during the first quarter of fiscal Banks' outstanding credit was US$ billion while deposits were Rs 62, billion (US$ 1, billion) as on June 29, 2012.

10 India's foreign currency assets (FCAs) grew by US$ 1.17 billion to US$ billion for the week ended June 29, 2012 which pushed foreign exchange reserves by US$ 1.36 billion to US$ billion. The value of gold reserves increased by US$ 0.17 billion to US$ billion during the same week. Recent Developments With an aim to enhance financial inclusion the North-Eastern circle of India, SBI has decided to open 56 'ultra small branches' (USB) across five districts in Assam in July The bank plans to complete 100 such USBs by July 31, 2012 and eventually convert all SBI customer service points into USBs. Small Industries Development Bank of India (SIDBI), the Lucknow-based development bank, has revamped its business model to boost entrepreneurship and provide working capital to micro, small and medium enterprises (MSME). The MSME sector contributes 17 per cent to India's gross domestic product (GDP) and SIDBI has decided to help budding entrepreneurs wanting to venture into MSME zone. SIDBI will set up credit facilitation centres (CFCs) across India in collaboration with industrial associations. It would use its Rs 5, 000 crore (US$ million) venture fund over to accomplish its target. India's largest international bank, the Standard Chartered Bank, has launched the country's first instant online credit card approval mechanism, which will facilitate online application and approval for credit cards within few minutes. The bank would extend this facility to other Consumer Banking products over the next few months, making banking more convenient for its millions of customers. Mobile Banking RBI considers mobile banking a key tool to achieve financial inclusion in the most effective manner. India has about 929 million subscribers and hence, offering banking services through mobiles is being considered as a viable option for coverage of the entire population under the banking system. The value of mobile banking transactions witnessed a quantum jump in the first five months of 2012, mainly on account of initiatives taken by banks such as SBI and ICICI Bank, wherein mobile service providers like Airtel promoted mobiles as medium for bill payments and fund transfers. According to RBI data, banking through mobiles increased five-fold to Rs 1,140.6 crore (US$ million) during January-May 2012 as against the value of Rs 209 crore (US$ million) in January-May The volume of transactions also increased remarkably in January-May A total of 15 million mobile transactions took place during the five-month period compared with around 5 million transactions in the yearago period, a clear sign that the payment medium has gained popularity. The transactions were conducted through 49 banks in the public and private sector.

11 Government Initiatives In order to boost retail participation in sovereign debt, RBI had allowed direct access to bond holders in the Annual Monetary and Credit Policy for To further enhance the participation, it has launched the webbased platform at which is being supported and run by the Clearing Corporation of India Limited (CCIL). Retail participants can now manage their Government bond holdings directly and can also initiate trade in the secondary market through the web portal. Currently, banks and financial institutions are the major investors in Government debt. Furthermore, in order to ensure expansion of ATMs in smaller cities across India, RBI has issued final guidelines allowing non-bank entities to set-up, own and operate ATM. RBI has also made things easier for customers who change jobs or locations. Previously it was difficult for them to shift their bank account to the new location as they were asked to open a fresh account or undergo the full know your customer (KYC) process again. RBI has now made it compulsory for banks to allow easy transfer of accounts from one branch to another by having a central customer ID. It would facilitate portability of accounts and ensure that all customer information is centralized. Road Ahead According to a report by the Boston Consulting Group (BCG) India, prepared in association with a leading industry organization and Indian Banks Associations (IBA), the Indian banking industry would be the world's third largest in asset size by 2025 and mobile banking would become the second largest banking mode after ATMs. Furthermore, owing to the positive eco-system of the industry and regulatory and Government initiatives, mobile banking is expected to enhance from 0.1 per cent of transactions in a 45 per cent financial inclusion base in 2010 to 34 per cent of the transactions with 80 per cent rural inclusion base by 2020, as per the report. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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