Karur Vysya Bank Ltd For Target Rs. 264 By Elara Capital Ltd
Good quarter, consistency key to re-rating
Karur Vysya Bank’s (KVB IN) Q3FY25 PAT rose >20% YoY to ~INR 4.96bn, surpassing estimates, aided by higher revenue traction and curtailed credit cost despite prudential provisions. Q3 was characterized by steady delivery across key metrics, enabling it to deliver > 15% YoY PPoP growth, RoA of >1.7% and RoE of 17% plus. Asset quality continues to be steady, with curtailed slippages feeding into GNPL at 83bps and NNPL at 28bps, 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 (it seems a steady compounder). There could be certain variabilities on NIMs when interest rate tables turn, which needs to be monitored. We see limited positive triggers hereon and a re-rating thus will be gradual. Maintain Accumulate with TP raised to INR 264 (from INR 242), as we roll over to September 2026E.
Steady performance across key metrics: In Q3, loan growth was steady (up 3.4% QoQ), supported by growth in the RAM segment even as corporate book continued to decline (down 2% QoQ). NIMs, however, were down 8bps QoQ (to 4.03%, above the guided range), given the pressure on funding cost (up 11bps QoQ), restricting NII growth to sub-2% QoQ (as estimated). 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 deposit costs likely sticky and yields contingent on the rate cycle. 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 1.4bn (0.8% on lagged loan), which with steady recovery/upgrades and higher write-offs fed into lower GNPL. Looking at various segments, slippages seem to have been broadly normalized. Provisions were, however, higher as KVB further added INR 250mn towards prudential provisions and maintained >75% coverage.
KVB has delivered on asset quality in a much better manner and aims to sustain this performance, but we are conservatively building in ~1% credit cost, which may offer upside to our estimates. Coverage (calculated) of >75% with floating buffer lends comfort, in our view. Two factors that warrant monitoring are: a) slippages in the retail segment (till now trends are stable) and b) transition to ECL, which will be a key variable, in our view.
Maintain Accumulate with TP raised to INR 264: KVB has overcome tough times to deliver a strong performance. The bank has delivered much better than peers during the cycle and outcomes are getting more predictable. Rolling into September 2026E feeds into a raised TP of INR 264 (from INR 242) – 1.5x P/BV assigned for RoA/RoE of 1.5%/14-15% in the medium term. That said, given limited scope of positive surprise in core performance, a re-rating would be gradual. Thus, we maintain Accumulate
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SEBI Registration number is INH000000933
