The brokerage firm Kotak Institutional Equities has reaffirmed its ‘Buy’ rating on Karur Vysya Bank (KVB), citing the lender’s strong fundamentals and consistent financial performance as the key reasons for the positive outlook. According to them, the bank’s return on equity (RoE) of 17% and strong earnings growth have prompted the brokerage to increase its fair value (FV) target from Rs 250 to Rs 260. However, the brokerage remains cautious about the bank’s potential for a significant re-rating in the near term.
Further, the brokerage firm in its report added that KVB reported a strong 21% YoY growth in net profits for Q3 FY25, driven by a similar 21% YoY increase in operating profits. The bank also achieved 14% YoY loan growth and maintained stable net interest margins (NIM) on a quarterly basis. “KVB’s operational performance remains strong, and its consistent RoE of ~17% showcases its efficiency,” the brokerage added.
Despite KVB’s strong financial performance, the brokerage firm in its report noted that the bank also faces challenges in achieving a significant re-rating. For instance, larger private lenders such as Axis Bank and IndusInd, trading at similar valuations, set a high benchmark for regional players like KVB.
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KVB’s asset quality remains stable, with slippages and credit costs showing improvements. Loan growth averaged around 15% YoY. The brokerage further in its report added, “At our fair value, we are valuing KVB at 1.5 times book value and approximately 10 times FY27 earnings per share. While we see KVB as a steady compounder, a substantial re-rating appears unlikely without stronger growth or profitability.”
However, the brokerage firm flagged a deceleration in earnings growth as a potential concern. “With credit cost normalisation, we are entering a phase of slower earnings growth,” the report added.
Karur Vysya Bank Q3 performance
Karur Vysya Bank reported a 20.5% YoY increase in net profit for Q3FY25, reaching Rs 496.03 crore, compared to Rs 411.63 crore in the same period last year. Sequentially, the profit grew 4.7% from Rs 472.6 crore. The bank’s net interest income (NII) rose 7.7% YoY to Rs 1,078.8 crore, up from Rs 1,001.3 crore in Q3FY24, and improved 1.7% QoQ from Rs 1,059.95 crore.
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