Karur Vysya Bank (KVB) KVB IN; KVB.BO

Transcription

1 Banking India (KVB) KVB IN; KVB.BO Institutional Equity Research May 2, 2015 result review HOLD Consolidating growth, high capital, elevated slippages Current price (30 Apr) Rs 482 Target price Rs 560 Upside/(downside) % 16 Earning estimate Revised Market data Mkt capitalisation Rs bn 58.2 Average daily vol ' week H/L Rs 619 / 368 Shares O/S mn Free float mn Promotor holding % 2.2 Foreign holding % 2 Face value Rs 10.0 Price performance 1m 3m 6m 1yr Nifty (abs) (3.6) (7.1) () 22.2 Stock (abs) (1) (19.1) (1) 23.7 Relative to Index (7.8) (12.0) (10.0) Performance (10) 300 (20) Apr-14 Jul-14 Oct-14 Jan-15 (LHS) Source: Bloomberg, SSLe Rel. to Bankex (RHS) Consolidating loan growth, moderate outlook: s (KVB) earnings came in line with SSLe in, driven by modest NII growth (14.1% YoY) and strong non-interest income growth (23.4% YoY). The impact of higher provisioning in got offset by tax reversals. The growth in advances was modest at 5.5% YoY and 1.6% QoQ, as the Bank consolidated its loan growth. Focus on its SME and retail book is likely to continue. We expect a conservative loan growth of ~17% CAGR over F15 F17. Higher NIM, stable CASA and productivity: NIM improved 7bps QoQ to 5% in on the back of CASA share being stable at 22%. Deposit growth remains muted at 2.1%. A stable CASA share of 22% and higher credit-deposit of 81.2% are likely to support a stable NIM of 3.0% over F16 F17. On the back of better utilization from the existing setup, productivity has improved with core cost-to-income falling 76bps to 53.9% YoY, which is higher than its peers. Going forward, we expect costassets to remain steady at 2.0%. Asset quality trend is inconsistent; adequately capitalized: Slippages remained elevated during the quarter at 2.5% of advances, compared to 0.9%in. The Bank incrementally restructured Rs3.7bn of loans with the outstanding restructured book now at ~5.3% of the total loan book (higher than peers). As a result, annualized credit costs increased during the quarter to 2.0%. However, a capital adequacy 14.6% and Tier 1 capital of 13.6%, give comfort against additionally delinquencies. Valuations: On lower growth and productivity assumptions, we trim our estimates by 7% and 13% for F16 and F17e, respectively. On lower RoEs, we trim our target price to Rs560 from Rs630 earlier. At our target price, the stock would trade at 1.6x F16e and 1.4x F17e PBV. a) Better Productivity, b) steady NIMs and c) strong capital adequacy are likely to drive higher RoA of 1.0% by F17e. A consistent asset quality will drive the Bank s valuations going ahead. We maintain HOLD. Key Risks: Slower-than-expected credit growth and higher-than-expected slippage rate management. Financial summary Y/E March (Rs mn) F13 F14 F15e F16e F17e Net interest income 11,585 12,837 14,659 17,000 19,937 NIM Operating profit 8,488 8,378 9,520 11,228 13,661 PAT 5,503 4,296 4,643 5,540 6,994 EPS ABV P/ABV (x) P/E (x) Dividend yield RoE RoAA SBICAP Research on Bloomberg SBICAP <GO>, Please refer to our disclaimer given at the last page.

2 Stable NIM on the back of healthy NII growth Impact of higher provisioning got mitigated by tax reversals Quarterly financials Y/E March (Rs mn) YoY QoQ e Var. Interest earned 13,278 13, ,647 (2.7) 13,767 (3.6) Interest on advances 10,445 10, ,672 (2.1) 10, Income from investment 2,825 3,009 (6.1) 2,929 (3.5) 2, Int. on bal. with RBI/oth (92.9) 45 (87.9) Other interest income (97.2) (0.0) Interest expended 9,304 9,744 (4.5) 9,736 (4.4) 9,741 (4.5) Net interest income 3,974 3, , ,026 () Other income 1,798 1, , , Operating income 5,772 4, , , Operating expenses 3,085 2, , , Staff expenses 1,578 1, , , Operating profit 2,687 2, , ,800 (4.0) Non-tax provisions 1,948 1, , Profit before tax (25.6) 1,565 (52.8) 1,918 (6) Taxes (640) (203) NM 427 NM 526 NM Tax rate (86.7) (20.5) NM 27.3 NM 27.4 NM Profit after tax 1,378 1, , ,392 (1.0) Extraordinary income 0 0 NM 0 NM 0 NM Profit after tax 1,378 1, , ,392 (1.0) Source:Company, SSLe Changes in estimates (Rs mn) Revised Old Change F16e F17e F16e F17e F16e F17e NII 17,000 19,937 17,608 21,197 (3.5) (5.9) Operating Profit 11,228 13,661 12,000 14,862 (6.4) (8.1) Net Profit 5,540 6,994 5,956 7,968 (7.0) (12.2) Business 940,020 1,128, ,352 1,219,427 (5.9) (7.5) Source: SSLe Advances growth to remain robust driving improvement in NII growth , (Rs mn) 3,100 2,200 1, Credit growth (LHS) Business Growth (RHS) CASA share stable above 42% 400 NII (LHS) Reported NIM (RHS) Improving core cost-to-income and profitability 2.0 (Rs mn) 96,000 77,000 58,000 39, ,000 CASA CASA share (RHS) NPA coverage 0.6 GNPA as % of advances (RHS) May 2,

3 PBV chart (1-year forward) 1, Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Jan-14 Nov-14 Price 0.7x x 1.9x 2.5x Historical PBV mean valuations (1-year forward) The stock would trade at P/BV of 1.6x F16e and 1.4x F17e BV at our TP. (x) Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Jan-14 Nov-14 Mean Deviation +1SD -1SD +2SD -2SD PE chart (1-year forward) Mar-08 Aug-08 Jan-09 Jun-09 Nov-09 Apr-10 Sep-10 Feb-11 Jul-11 Dec-11 May-12 Oct-12 Mar-13 Jan-14 Nov-14 Prices 3x 6x 9x 12x May 2,

4 Roaa decomposition Key Assumptions Y/E March F13 F14 F15e F16e F17e Y/E Mar (Rs mn) F16e F17e Net interest income Balance Sheet Assumptions Other income Credit Growth (%YoY) Fee-based income Deposits Growth (%YoY) Treasury income Investments Growth (%YoY) Operating income CD Ratio Operating expenses Staff cost Asset Quality Assumptions -Other operating expense Slippage Ratio Pre-provision profits (PPP) Net Recovery Ratio Provisions Provisioning Cover Profit before taxes Taxes 0.42 (0.07) Profit after taxes Financials Income statement Ratios Y/E March (Rs mn) F13 F14 F15e F16e F17e Y/E March (Rs mn) F13 F14 F15e F16e F17e Interest earned 42,424 51,160 53,959 58,531 68,121 Earning ratios Interest expended 30,840 38,323 39,300 41,531 48,184 Yield on advances Net interest income 11,585 12,837 14,659 17,000 19,937 Yield on investments Growth Cost of deposits Other income 4,526 5,645 5,808 6,392 7,384 Spread Fee-based income 2,785 3,481 3,829 4,518 5,332 NIM Treasury income 883 1, C/I ratio Other miscellaneous income 857 1,131 1,229 1,474 1,753 C/I (excl. treasury gains) Operating income 16,110 18,482 20,467 23,392 27,322 Growth Profitability ratios Operating expenses 7,622 10,104 10,948 12,164 13,661 RoE Staff cost 3,436 5,279 5,471 5,960 6,694 RoA Other operating expense 4,186 4,824 5,477 6,204 6,967 OPM Pre-provision profits (PPP) 8,488 8,378 9,520 11,228 13,661 NPM Growth 17.0 () Provisions 1,234 4,423 4,805 3,842 3,947 Asset quality Profit before taxes 7,254 3,955 4,714 7,386 9,714 Gross NPAs Taxes 1,751 (341) 72 1,847 2,720 Net NPAs Tax rate 24.1 (8.6) NPA coverage Profit after taxes 5,503 4,296 4,643 5,540 6,994 NNPA/networth Growth 9.7 (21.9) Capital adequacy ratio Tier-I Balance sheet Tier-II Y/E March (Rs mn) F13 F14 F15e F16e F17e Total Capital 1,072 1,072 1,216 1,216 1,216 Equity Multiplier (x) Reserves & surplus 29,780 32,192 41,244 43,783 47,931 Networth 30,852 33,263 42,460 44,999 49,147 Per share data Deposits 386, , , , ,764 O/s shares (mn.) Borrowings 39,993 32,933 29,008 34,809 41,771 EPS Other liabilities & provisions 8,872 10,259 12,193 14,285 16,330 Book value per share Total liabilities 466, , , , ,012 Adjusted book value Dividend per share Cash & Bank Balances 17,960 26,782 27,491 32,202 35,982 Advances 293, , , , ,479 Valuations (x) Investments 138, , , , ,921 P/E Fixed assets 3,221 3,847 4,112 8,386 9,982 P/BV Other assets 12,978 12,411 11,103 10,249 12,200 P/ABV Total assets 466, , , , ,565 Dividend yield May 2,

5 Recommendation History BUY HOLD SELL Stock Price Target Price Date Stock Price TP Rec. 1-Apr BUY BUY 10-Nov HOLD HOLD HOLD Feb-13 Apr-13 Jun-13 Oct-13 Dec-13 Feb-14 Apr-14 Aug-14 Oct-14 Dec-14 Feb-15 Source: Bloomberg, SSLe SBICAP Securities Limited Corporate Office: Mafatlal Chambers, A-Wing, 2nd Floor, N. M. Joshi Marg, Lower Parel, Mumbai Tel.: /01 Fax: KEY TO INVESTMENT RATINGS (w.e.f. February 2013) Guide to the expected return over the next 12 months. 1=BUY (expected to give absolute returns of 15 or more percentage points); 2=HOLD (expected to give absolute returns between -10 to 15 percentage points); 3=SELL (expected to give absolute returns less then - 10 percentage points) DISCLAIMER We, Kaitav Shah, MBA (Finance) Analyst and Sanket Chheda (MBA Finance) Research Associate authors of this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuers or securities. This report has been prepared based upon information available to the public and sources, believed to be reliable. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendations or views in this report. SBICAP Securities Limited (SSL),a full service Stock Broking Company and a member of National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Ltd. (BSE). SSL is a wholly owned subsidiary of SBI Capital Markets Limited (SBICAP), which is engaged into the investment banking activities and is registered with the Securities and Exchange Board of India as a Category I Merchant Banker. SBICAP (Singapore) Limited, a fellow subsidiary of SSL, incorporated in Singapore is regulated by the Monetary Authority of Singapore as a holder of a capital markets services license and an exempt financial adviser in Singapore. SBICAP (Singapore) Limited s services are available only to accredited investors (other than individuals), and institutional investors in Singapore as defined in section 4A of the Securities and Futures Act (Cap. 289) of Singapore. SBICAP (Singapore) is a wholly owned subsidiary of SBICAP. SBICAP (UK) Limited, a fellow subsidiary of SSL, incorporated in United Kingdom is authorised and regulated by the Financial Services Authority. [SBICAP, SBICAP (Singapore) Limited, SBICAP (UK) Limited and SSL are collectively referred to as SBICAP Entities]. Recipients of this report should assume that SBICAP Entities (and/or its Affiliates) is seeking (or may seek or will seek) Investment Banking, advisory, project finance or other businesses and may receive commission, brokerage, fees or other compensation from the company or companies that are the subject of this material/ report. SSL (and/or its Affiliates) and its officers, directors and employees, including the analysts and others involved in the preparation/issuance of this material and their dependant(s), may on the date of this report/from time to time, have long/short positions in, act as principal in, and buy or sell the securities or derivatives thereof of companies mentioned herein. SSL s sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to its clients that reflect opinion that are contrary to the opinions expressed herein, and its proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. SSL may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different from those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to potential conflicts of interest. Please ensure that you have read Risk Disclosure Document for Capital Market and Derivatives Segments as prescribed by Securities and Exchange Board of India before investing in Indian Securities Market. The projections and forecasts described in this report should be carefully evaluated as these 1. Are based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. 2. Can be expected that some of the estimates on which these were based, will not materialize or will vary significantly from actual results, and such variances may increase over time. 3. Are not prepared with a view towards compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these. 4. Should not be regarded, by mere inclusion in this report, as a representation or warranty by or on behalf of SSL the authors of this report, or any other person, that these or their underlying assumptions will be achieved. This report is for information purposes only and SBICAP Entities accept no liabilities for any loss or damage of any kind arising out of the use of this report. Though disseminated to clients simultaneously, not all clients may receive this report at the same time. SSL will not treat recipients as clients by virtue of their receiving this report. It should not be construed as an offer to sell or solicitation of an offer to buy, purchase or subscribe to any securities this report shall not form the basis of or be relied upon in connection with any contract or commitment, whatsoever. This report does not solicit any action based on the material contained herein. It does not constitute a personal recommendation and does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all the investors. SSL does not provide tax advice to its clients and you should independently evaluate the suitability of this report and all investors are strongly advised to May 2,

6 seek professional consultation regarding any potential investment. Nothing in this report is intended by SBICAP Entities to be construed as legal, accounting or tax advice. Certain transactions including those involving futures, options, and other derivatives as well as non-investment grade securities give rise to substantial risk and are not suitable for all investors. Foreign currency denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of or income derived from the investment. Investors in securities such as ADRs, the value of which are influenced by foreign currencies effectively assume currency risk. The price, value and income of the investments referred to in this report may fluctuate and investors may realize losses on any investments. Past performance is not a guide for future performance. Actual results may differ materially from those set forth in projections. SSL has reviewed the report and, the current or historical information included here is believed to be reliable, the accuracy and completeness of which is not guaranteed. SSL endeavors to update on a reasonable basis the information discussed in this document/material/ report, but regulatory compliance or other reasons may prevent it from doing so. This report/document has been prepared by SSL based upon information available to the public and sources, believed to be reliable. No representation or warranty, express or implied is made that it is accurate or complete. The opinions expressed in this report are subject to change without notice and have no obligation to tell the clients when opinions or information in this report change. This report has not been approved and will not or may not be reviewed or approved by any statutory or regulatory authority in India, United Kingdom or Singapore or by any Stock Exchange in India, United Kingdom or Singapore. This report may not be all inclusive and may not contain all the information that the recipient may consider material. This report does not constitute or purport to constitute investment advice in publicly accessible media and should not be reproduced, transmitted or published by the recipient. The report is for the use and consumption of the recipient only. This report or any portion hereof may not be printed, sold or distributed without the written consent of SBICAP Entities. The securities described herein may not be eligible for sale in all jurisdictions or to all categories of investors. The countries in which the companies mentioned in this report are organized may have restrictions on investments, voting rights or dealings in securities by nationals of other countries. Distributing /taking/sending/dispatching/transmitting this document in certain foreign jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Failure to comply with this restriction may constitute a violation of any foreign jurisdiction laws. Neither SBICAP Entities nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Further, no representation or warranty, expressed or implied, is made or given by or on behalf of SBICAP Entities, nor any person who controls it or any director, officer, employee, advisor or agent of it, or affiliate of any such person or such persons as to the accuracy, authenticity, completeness or fairness of the information or opinions contained in this report and SBICAP Entities or such persons do not accept any responsibility or liability for any such information or opinions and therefore, any liability or responsibility is expressly disclaimed. Legal Entity Disclosure Singapore: This report may be distributed in Singapore by SBICAP (Singapore) Limited (Registration No R), a holder of a capital markets services license and an exempt financial adviser in Singapore and solely to persons who qualify as institutional investors or accredited investors (other than individuals) as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (the SFA ) and is not intended to be distributed directly or indirectly to any other class of person. Persons in Singapore should contact SBICAP (Singapore) Limited in respect of any matters arising from, or in connection with this report. United Kingdom: This marketing communication is being solely issued to and directed at persons (i) fall within one of the categories of Investment Professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Financial Promotion Order ), (ii) fall within any of the categories of persons described in Article 49 of the Financial Promotion Order ( High net worth companies, unincorporated associations etc. ) or (iii) any other person to whom it may otherwise lawfully be made available (together Relevant Persons ) by SSL. The materials are exempt from the general restriction on the communication of invitations or inducements to enter into investment activity on the basis that they are only being made to Relevant Persons and have therefore not been approved by an authorised person as would otherwise be required by section 21 of the Financial Services and Markets Act 2000 ( FSMA ). This report is issued and distributed by SBICAP Entities without any liability / undertaking / commitment on the part of itselves or SBI Capital Markets Limited or State Bank of India or any other entity in the State Bank Group. Further, in case of any commitment on behalf of State Bank of India or SBI Capital Markets Limited or any entity in the State Bank Group, such commitment is valid only when separately confirmed by that entity. May 2,