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Good Q4, better placed than peers

Karur Vysya Bank’s (KVB IN) Q4FY25 PAT rose >12% YoY to ~INR 5.13bn, marginally ahead of estimates, aided by higher traction in revenue and curtailed credit cost despite prudential provisions. Q4 was characterized by steady delivery across key metrics, enabling KVB to deliver RoA of >1.7% and RoE of 17% plus. Asset quality continues to be steady, with curtailed slippage feeding into GNPL at 76bps and NNPL at 20bps, at the lowest level, which is commendable. KVB has performed well this cycle and has been more consistent than peers. Despite being conservative, we see the bank consistently delivering 1.5% RoA and 15% plus RoE in the medium term (KVB seems a steady compounder). There could be some variabilities on NIMs with turning interest rate tables, which needs to be watched, but the bank has been ably managing this. Expect any re-rating to be gradual. So, we maintain Accumulate with TP unchanged at INR 264.

Steady performance across key metrics: Q4 saw steady loan growth (up >2% QoQ), supported by growth in the RAM segment even as the corporate book continued to drop (down 6% QoQ). NIMs were managed well, up 2bps QoQ (to 4.05%, much above the guided range) feeding into NII growth of ~10% QoQ (in-line with estimates). KVB seems to be benefiting from the changing loan construct (dip in lower-yielding corporate book as KVB continued to focus on profitability), but funding cost is a challenge. We see NIM headwinds hereon with turning rate tables. But KVB has the cushion to mitigate the impact via curtailed credit cost, thus rendering steady earnings momentum..

Asset quality holding up; credit cost curtailed despite prudent provisions: Slippages were curtailed at INR 1.8bn (1% on lagged loan), which with steady recovery/upgrades and writeoffs fed into lower GNPL. Looking at various segments, slippages seem to have been broadly normalized. Provisions were however higher as the bank further added INR 250mn towards prudential provisions and maintained ~74% coverage, providing comfort.

KVB have delivered on asset quality much better and aims to sustain this performance, but we are conservatively building in higher credit cost, which may offer upside to our estimates. Coverage (calculated) of ~74% with floating buffer lends comfort, in our view. Two factors that warrant a watch are: a) slippages in the retail segment (till now trends are stable) and b) transition to ECL (it is pushed back and the bank is carrying prudent provisions), which will be a key variable in our view.

Maintain Accumulate with TP maintained at INR 264: KVB has overcome tough times to deliver a strong performance. It has delivered much better than peers during the cycle and outcomes are getting more predictable. We maintain Accumulate with TP at INR 264, assigning 1.4x P/BV for RoA/RoE of 1.5%/14-15% in the medium term. That said, KVB could possibly surprise on core performance much better than peers, and that will drive a re-rating

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