With an experience of nearly three decades, Vijay Kedia is known for his ability to pick multi-baggers in the Indian stock market. One of his top picks has reported a 90% drop in Q4 net profit. We take a look at why Edelweiss is bullish on the shares.
With an experience of nearly three decades, Vijay Kedia is known for his ability to pick multi-baggers in the Indian stock market. Karnataka Bank shares, a firm he’s bullish on has reported a 92% drop in net profit to Rs 11 crore in the fourth quarter of 2017-18 against a profit of ₹138.37 crore in the corresponding period of the previous fiscal. As at the end of March-18, he holds 33 lakh shares or 1.17% in the company, data filed with BSE showed. At current market prices, his stake amounts to Rs 38.8 crore.
Taking stock of the Q4 results reported by the bank, Edelweiss said that Karnataka Bank has reported a lower than estimated net profit due to higher credit cost, even while core profitability surpassed estimate. “Slippages rose to more than 9 percent given RBI’s recent asset reclassification norm and divergence impact,” the firm noted. Edelweiss has a buy call on the shares with a target price of Rs 163. The shares were trading at Rs 118, up by more than 1%. Edelweiss target price implies an upside of more than 38% from the current market prices.
Edelweiss said that the bank has clocked improving performance in the latest quarter, and the period was characterised by better revenue traction and controlled opex (up less than 8 percent YoY). Key monitorables: a) soft CASA accretion (less than 7 percent YoY) at sub-28 percent; and b) around 40 percent coverage ratio, which will keep credit cost high. “While better revenue traction and controlled opex are likely to aid operating profit growth, elevated credit cost could cap earnings growth. However, higher share of retail (around 45 percent) and current valuation of 0.7x FY20E P/ABV lend comfort. Maintain Buy,” said the report.
In an interview to ET Now last year, Vijay Kedia said that Karnataka Bank shares could be a multibagger. “I’m buying Karnataka Bank. All my stocks are very simple to explain. The bank has projected to double its turnover by 2020 and simple yardstick which is going on in the banking industry is if a bank has and it is a private sector bank. I am expecting it to be a three bagger or four bagger.” Karnataka Bank shares have corrected by more than 22% in the year so far.