Buy Karur Vysya Bank Ltd For Target Rs. 300 By Emkay Global Financial Services Ltd
Delivers a superlative RoA, yet again
Karur Vysya Bank (KVB) continued to report a robust performance, with PAT at Rs5.1bn and peer-best RoA at ~1.7%, which the bank guides to uphold, aided by healthy operating profitability and contained credit cost. Credit growth softened to 14% YoY/2% QoQ owing to strategic slowdown in the high-risk portfolio (BNPL, VF, PL) and low-yielding corporate book. Reported NIM was broadly stable at 4.05% owing to rebalancing of the portfolio toward better yielding, granular, secured retail advances. Asset quality continues to hold up well, with slippages contained at 1% of loans, leading to peer-best GNPA/NNPA ratio at 0.8/0.2% of loans. The bank targets clocking credit growth of 200bps above the industry’s and margins moderating to 3.7–3.75% given policy rate cuts. We broadly maintain our FY26-27 estimates and expect KVB to deliver RoA/RoE of 1.6–1.7%/16–18% over FY26–28E, backed by strong RoA, asset quality, capital/provision buffers, and stable management. We reiterate BUY on KVB with TP of Rs300, valuing the bank at 1.5x Mar-27E ABV.
Karur Vysya Bank (KVB) continued to report a robust performance, with PAT at Rs5.1bn and peer-best RoA at ~1.7%, which the bank guides to uphold, aided by healthy operating profitability and contained credit cost. Credit growth softened to 14% YoY/2% QoQ owing to strategic slowdown in the high-risk portfolio (BNPL, VF, PL) and low-yielding corporate book. Reported NIM was broadly stable at 4.05% owing to rebalancing of the portfolio toward better yielding, granular, secured retail advances. Asset quality continues to hold up well, with slippages contained at 1% of loans, leading to peer-best GNPA/NNPA ratio at 0.8/0.2% of loans. The bank targets clocking credit growth of 200bps above the industry’s and margins moderating to 3.7–3.75% given policy rate cuts. We broadly maintain our FY26-27 estimates and expect KVB to deliver RoA/RoE of 1.6–1.7%/16–18% over FY26–28E, backed by strong RoA, asset quality, capital/provision buffers, and stable management. We reiterate BUY on KVB with TP of Rs300, valuing the bank at 1.5x Mar-27E ABV.
KVB reported a measured credit growth of 14% YoY/2% QoQ, due to conscious pruning of its low-yielding corporate book (down 6% QoQ) and deceleration in the PL, BNPL, and VF book. The management remains cautious on BNPL (via tie up with Amazon), but plans expanding it when macro conditions improve. NIM was broadly stable at 4.05% owing to rebalancing of the portfolio toward better yielding, granular, secured retail advances. The bank targets growing 2% higher than the system in FY26, supported by a strong RAM performance. The higher EBLR book (~52%) in a swift rate-cut scenario is likely to put some pressure on margin; however, this would be mitigated by strategic interest rate cuts by the bank, in our view. Accordingly, KVB targets 3.7–3.75% margin in FY26.
Sustains one of the lowest GNPA/NNPA ratios among SMID PVBs
KVB’s GNPA ratio further improved by 7bps QoQ to 0.8% of loans, owing to lower gross slippages, coupled with higher write-offs and better recoveries. With higher specific PCR of 74%, NNPA ratio stood at 0.2%, which is one of the lowest among peers. Further, the bank continues to hold contingent buffer at Rs1bn, to withstand any initial asset-quality risks. The restructured book further contracted to 0.6% vs 0.7% of loans in Q3FY25; the bank now carries ~41% provision cover on the book. It targets maintaining GNPA/NNPA ratio of under 1%/0.5%, with slippages contained below 1%.
We retain BUY; top pick among SMID banks
We broadly maintain our FY26–27 estimates, and expect KVB to deliver RoA/RoE of 1.6– 1.7%/16–18% over FY26–28E, backed by strong RoA, asset quality, capital/provision buffers, and stable management. We reiterate BUY on the stock, with TP of Rs300, valuing the bank at 1.5x Mar-27E ABV. Key risks: Slower-than-expected growth, and resurgence of NPAs in the retail/SME sector due to macro/micro dislocation.
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