This small-cap bank stock may hit a century; 75% gains since January, 25% upside still left

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Updated: October 4, 2017 3:34:36 PM

Karur Vysya Bank shares have returned more than 75% since January. The shares are well poised to return a 100% in toto, according to research firms HDFC Securities and Angel Broking.

IPO, HDFC Standard Life Insurance, New India Assurance Company, General Insurance Corporation of India, Indian rupee, NBFCsKarur Vysya Bank shares have returned more than 75% since January. (Image: Reuters)

Karur Vysya Bank shares have returned more than 75% since January. The shares are well poised to return a 100% in toto, says Angel Broking. The research firm has a target of Rs 180 on the shares, implying an upside of more than 25% from the current price of Rs 143. Angel Broking says that loan growth is likely to pick up after a sluggish FY17. Further, lower credit cost will help the company to increase its Net Profit. “Increasing share of CASA will help in NIM improvement,” said the firm in a note.

HDFC Securities has advised the investors to buy the stock with a target price of Rs 181. According to HDFC Securities, Karur Vysya Bank has consistently maintained comfortable capital adequacy, backed by regular capital infusion through rights issues and moderate internal accruals. HDFC Securities says that slippages should decline going forward, as the bank has already restructured a major portion of troubled assets.

Pointing to the strengths of the company, HDFC Securities says that, with a shift in focus to Retail/SME lending, loan growth is expected to pick up. Further, lower credit costs would ensure higher growth in PAT and improvement in return ratios for Karur Vysya Bank. HDFC Securities believes that the new MD Mr P R Seshadri, who comes from CITI Bank, could bring in fresh insights and strategies to boost Net Interest Income and fee income.

In its recent report, pointing to the concerns of the bank, HDFC Securities noted that the bank has high geographic concentration as it derives more than half of its business from its branches located in the state of Tamil Nadu. Any change in the socio-political scenario or a natural calamity could impact its borrowers and worsen the asset quality, says the firm.

Further, the research firm says that the bank is likely to face greater competitive intensity as it looks to expand its retail footprint even as this might impact its fee income. “Deterioration in asset quality NPA of the bank have increased significantly in the past 2 years. Any further deterioration in asset quality could result in higher provisioning requirements leading to lower profitability,” observes the report. Notably, the shares have corrected by more than 2.5% in the last one month.

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