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and create wealth. We like to select companies with strong competitive advantages and are quoting at a discount to their intrinsic value. ‘s (SIP) - Best Way to Grow your wealth
Karur Vysya Bank (KVB)
- Highly Efficient Mid-Cap Bank + A Steady Compounder
• Karur Vysya Bank – Investment Snapshot :- Slide #4 • Industry Opportunity – An Overview:- Slide #6 • Karur Vysya Bank – Business Overview :- Slide #11 • Investment Rationale :- Slide #17 • Karur Vysya Bank – Financials:- Slide #23 • Concerns & Reasoning :- Slide #25 • Conclusion :- Slide #29
“ Specialists in discovering Multibagger stocks “
This helps in diversifying its base and also decrease the risk of geographical concentration. 52.370-400 Returns Expected :.Venkatarama Chettiar & Athi Krishna Chettiar with a seed capital of just around 1 Lakh Rs.88 % KVB was started in the year 1916 in Karur by the duo of M.26 % Institutional Holding – 27.~25% CAGR Current Market Price – Rs. It is one of the few Old Private sector banks which continues to operate well in the changed scenario. 315 Promoter’s Holding – 3. 400.BO BSE / NSE Code – 590003 / KARVYS Mkt Cap (INR BN / USD Mn) – 42. 437 / Rs.40] Total Equity Shares [Mn]– 107 Face Value – Rs.A. 10 52 Week High / Low – Rs.Karur Vysya Bank (KVB) – Investment Snapshot (as on April 26. It has also declared uninterrupted dividend since its inception. KVB has since then consistently grown into a leading financial institution. KVB has made profits consistently for the past 95 years of its banking operations. “ Specialists in discovering Multibagger stocks “ .91 / 818. Karur Vysya Bank has been a strong institution with well entrenched business relationships with its customers.75 Bloomberg / Reuters Code – KVB IN/ KARU.9 [1 USD – Rs. depositors and shareholders. KVB is known for its Customer Service and Trust amongst its clients. 2012) Recommendation :.BUY Accumulation Range :. KVB from being a Tamilnadu centric bank has started expanding its operation across the nation with the opening of several branches in North India. offering banking services to Millions of customers and a Market Capitalization of 4300 Cr Rs.
06%.Key Investment Highlights Modern Old Private Sector Bank – KVB is one of the most efficient bank in India. We expect similar offering from the bank during its Centenary year of 2016. RoAA is at 1. but KVB is as good as any New-Age Private sector banks. Share-Holder Friendly Bank – KVB has been a very shareholder friendly bank with a dividend of 120% for the past 5 years. Most of the Old private sector banks have not been able to grow out of their geographies or community base.3% and Coverage Ratio of over 80% which shows the operational quality of the bank. KVB’s attractive valuations has already started attracting “Smart Money” from several reputed investors. Its branch network has increased by more than 50% in the past 5 years indicating the potential growth and Margin expansion in the coming years. and also issued rights shares at 2:5 (after bonus) with a low premium of Rs. the bank has rewarded its shareholders by Bonus shares at 2:5.25%. Healthy Growth Story – KVB has been growing at a healthy pace over the past several years on all fronts. KVB has also been able to modernize itself on all fronts. It is one of the early adopters of technology in their operations and all its branches are CBS enabled. indicating the superior Credit appraisal processes . Its Net Profit has been able to Compound at over 20% from 2007-11 which displayed resilience of the bank’s profitability in spite of the economic downturn. During FY 2010-11. Net NPA’s less than 0.54%. Efficiency Parameters – KVB is well capitalized with a strong CAR of over 13. It is quoting at nearly half the P/B or P/E of banks like HDFC and IndusInd which provides scope for valuation expansion in the coming days. Bank has been able to maintain low NPA’s in spite of significant business growth over the past few quarters. “ Specialists in discovering Multibagger stocks “ . 140. Hugely Attractive Valuations – KVB in spite of above average fundamentals is not getting the premium valuation it deserves. NIM’s are strong at 3.
Industry Opportunity & Potential .An Overview “ Specialists in discovering Multibagger stocks “ .
• We also believe that the “Best of Indian Growth” is ahead of us and the country will enter into a phase where it will achieve near double-digit growth for several years in a row. “ Specialists in discovering Multibagger stocks “ . As a thumb rule.5X the GDP growth. Banking sector growth is usually 2. • Banking is the best bet to profit from the country’s GDP growth. • Indian banks are well run and have good return ratios when compared with banks across the developing economies.Indian Growth Story • Though there are people who have started to doubt the Indian Growth story. We feel this is a passing phase and India will get back to a high growth trajectory. our banking system is mature enough to handle Macro-Economic risks. we are very bullish on it. • With a strong regulator in RBI.
• Efficient banks will continue to garner market share and will grow at a higher pace than the Industry and these stocks are low-hanging Multi-Baggers. BANKEX has grown from 1. • There has been no new banking licenses issued in the past decade and any growth in the country is being shared within the existing banks.Robust Banking Growth Huge Moats for Banks :• India as a country is still very much under banked and there is a huge scope for improving the banking penetration and expanding the system. • Banking shares have been one of the top performers in the last decade with a high compounding growth. “ Specialists in discovering Multibagger stocks “ .700 to 15.000 in less than 8 years • Demand for Financial services outstrips the supply which is helping the banks to grow profitably and this will continue in the next decade.
Interest rate cycle has topped out and we can expect the banks to perform well going forward. “ Specialists in discovering Multibagger stocks “ . we can expect the banking margins to improve. • Banks which are not saddled with high Restructured Assets will gain from this reversal and continue to grow handsomely in the coming quarters. • High Interest rates affect credit demand. With RBI reducing CRR and Repo rate aggressively.Cyclical Banking Uptrend • Indian Banking has suffered a lot during the past 18 months because of high inflation and steep RBI hikes. Increases NPA leading to lower NIM’s and Profits for the banks.
• Though PSB stocks are available at cheaper valuation. even at higher valuations Private Bank stocks have outperformed PSB by a good margin. • Public sector banks have to deal with Government Interference.Bullishness on Private Banks Vs Public Sector Banks • Indian Private sector banks have outperformed Public sector banks on all fronts and gained a strong foothold. Net Profit Margin “ Specialists in discovering Multibagger stocks “ . • We are very positive on the future of the Indian private banks and we believe that they will continue to gain market share because of their efficiency. • Moreover. efficient banks like KVB has performed even better on both business and stock markets. • Within Private Sector Banks. we think that the markets are pricing the high risk associated with them. Low Capitalization and Banking unions which have led to increased volatility in their business performance over the decade.
Karur Vysya Bank – Business Overview “ Specialists in discovering Multibagger stocks “ .
Bank plans to grow its network by 10% YoY in various geographies.25 Lakh Cr business by 2016 which implies a CAGR of >23% Branch Expansion KVB has been on a branch expansion spree.4% Net NPA – 0. “ Specialists in discovering Multibagger stocks “ .5% NIM – 3. IDBRT. Karur Vysya Bank Healthy Culture + Trusted Brand Bank has a strong discipline in maintaining its lending mix. FE etc. risk mitigation and customer profile. KPMG.06% Cost/ Income – 40% Gross NPA – 1. taking the total Branch network to 450.29% Robust Track Record KVB’s share price has multiplied by 20X in the past 10 years and over 150X in the past 20 years indicating the wealth creation in the stock. BusinessToday. Management has a good vision for the bank with strong execution skills and experience. KVB plans to achieve Total Business of 1. Nearly 150 new branches has been opened in the last 4 years.Key Highlights Strong Parameters ROE – 20% ROA – 1. Excellence Awards Bank has been recognized for its operational excellence with Best Bank awards from CNBC.
• KVB has good % of its branches in Semi-Urban and Rural markets which has helped it to meet its Priority lending targets easily. “ Specialists in discovering Multibagger stocks “ . KVB has also been able to build a strong Agri lending portfolio over the years. Bank has been able to do good business even from its non-traditional geographies. • KVB is expanding its branches at 10% YoY and this along with normal business growth will help it to achieve its Target Business of 1. UTTARPRADESH PONDICHERY RAJASTHAN CHANDIGARH CHATTISGARH GOA JHARKHAND Grand Total Branches 228 97 34 25 15 11 8 8 5 4 4 3 3 2 2 1 1 1 1 452 Category On-site ATMs Off-site ATMs Total Dec 11 433 272 705 Rural 14% SemiUrban 39% Branch Split-Up Metro 18% Urban 29% • Karur Vysya Bank has a strong Distribution network with most of its branches located in Tamil Nadu + Andhra Pradesh where it has a strong brand image and rich legacy.25.P.000 Cr by 2016. • Management is opening new branches across India to diversify and reduce its Geographic concentration.000 Cr business from the current 52.Distribution Network STATE TAMILNADU ANDHRA PRADESH KARNATAKA MAHARASHTRA GUJARAT KERALA DELHI WEST BENGAL PUNJAB HARYANA ORISSA M.
KVB is not burdened with the legacy problems like other OLD banks and has also diversified itself from its core community base. Top management have been dynamic and highly professional. has been the frontrunner in adopting new technologies and changing itself to meet the need of its young customers. • All the 452 Branches of the bank are CBS enabled. KVB provides Internet Banking. Mobile banking. NRI banking etc.Rich History + Fresh Energy • Karur Vysya Bank in spite of being one of the oldest Private sector banks in the country. HDFC and Axis provide. • KVB has a strong internal culture which helps it to grow aggressively without compromising on the quality of growth. Credit Cards. • KVB now provides all kinds of new services to its customers which young private sector banks like ICICI. “ Specialists in discovering Multibagger stocks “ .
• In spite of good growth in Business. • KVB’s owned funds has grown at a compounded rate of around 18% in the past 5 years.Banking Parameters 35000 30107 30000 24722 KVB’s Owned Funds in Rs Cr 22263 25000 19272 20000 15101 5000 0 07-08 9569 08-09 Deposits 10563 10000 12550 09-10 13675 15000 10-11 Advances 18052 Dec 11 • Karur Vysya Bank has been able to grow its banking operations at a steady rate. KVB’s NonPerforming assets have been flat.KVB . “ Specialists in discovering Multibagger stocks “ . • Karur Vysya generates strong internal accruals leading to lower equity dilution when compared with other private sector peers.
“ Specialists in discovering Multibagger stocks “ . Fee income of a bank is a steady cash business and its growth is a good sign. • Company’s profits are less dependent on the Treasury sale profits which reduces the volatility in its earnings. • RBI’s rate cuts of 75-100bps will increase PoSI in the next fiscal year.Important Parameters • KVB’s fee income now contributes to more than 3/4th of its other income.
Investment Rationale “ Specialists in discovering Multibagger stocks “ .
KVB will have sufficient scope to hold (or) improve its NIM’s. Management has targeted achieving a CASA ratio of 30% in the medium term. “ Specialists in discovering Multibagger stocks “ . • Karur Vysya Bank’s Credit-Deposit ratio is less than 73% which provides scope for improvement and this will lead to better margins. will provide scope for increasing the CASA ratio. Also with the cut in CRR.Margin Levers KVB’s Business Mix KVB’s Deposit Profile • Karur Vysya Bank’s CASA ratio has been slipping for a while. • Operational efficiencies and Fee income will also get a decent boost with the tie-ups with 3rd party providers and branch addition. Partially due to the interest rate environment favoring FD’s and partially due to new branch additions. These along with Cyclical Banking improvements will lead to better Margins and Profits for Karur Vysya bank. The new branches when mature. We expect the margins to bounce back to their average levels in the medium term.
• Presently. treasury operations contribute less to its overall profits and moreover a drop in the current interest rates will lead to higher MTM profits from its bond holdings. There was a major drop in profits in 2004-05 because of a increasing interest rate environment which led to higher provisioning on its treasury portfolio and one-off shift in the value of its Bond holdings. KVB’s 10 year performance is as good as any other Top Bank in the country.10 Year Snapshot • KVB has shown consistent growth in operating income and profits for the past 10 years. “ Specialists in discovering Multibagger stocks “ .
Second Place in the Mid-sized banks category. Business Today – KPMG .2011 by FICCI & IBA. Hyderabad. “ Specialists in discovering Multibagger stocks “ . Business World – Price Waterhouse Coopers Best Bank Awards. Best Cost Efficient Private sector Bank. Best Old Private Sector bank Runner up – FE India Best Bank Awards.Quality of Assets. by IDRBT.IDRBT Banking Technology Excellence Awards. Best bank Award for Mobile Banking among small Banks .2011. Best Old Private Sector Bank – CNBC TV 18 Best Banks & Financial Institutions Awards 2011 by CNBC-TV18 & MCX.Best Mid-sized Bank . 2011 – Best Small Bank and Fastest Growing Small Bank.Awards & Recognition KVB’s performance has been well recognized with several awards like.FIBAC Best bank Award. 2010-11. EDGE AWARD from Information Week Magazine for Best IT implementation.
KVB has very little exposure to the stressed sectors like Airlines. we can expect KVB to report decent NPA going forward. KVB’s wrote-back several provisions which it had provided for during the downturn of 2008-09 and this boosted its profits tremendously in the next year. “ Specialists in discovering Multibagger stocks “ . SEB’s etc. • The bank has better recovery mechanisms and adequately provides for Provisions which makes sure that the Bank is well capitalized to handle any risks. • Karur Vysya Bank has the highest (Profit After Tax/ Average Assets) amongst all banks in the past 5 years. On the lending front. Hence. Infrastructure. KVB has a strong ingrained culture for better risk appraisal which shows in the NPA numbers.KVB Vs other Banks • Banking is a business of getting deposits and lending them profitably. Consistent Fee income growth is one of the important reasons for this achievement.
“ Specialists in discovering Multibagger stocks “ . ICICI Bank Ltd.66% 13.32 9.44% 17.62 17.13% 19.45% 21.62% 9.56% 17. NPM and RONW . South Indian Bank Ltd. Karnataka Bank Ltd. YES Bank Ltd.63% 13.27% 12. Operational Parameters ROA (E) 1.Karur Vysya Bank is amongst the top 3 private sector banks which indicates its efficient operations.82% 11.49% 3.59 3% 1% 1% 2% 1% 1% 1% Karur Vysya Bank Ltd. ING Vysya Bank Ltd. Development Credit Bank Ltd.56% 15.02% 3.54 7.71% 17.6 20.19 3% 2% 3% 2% 3% • KVB in spite of strong operational parameters which is inline with Large banks.80% 1.96% 10.09% 2.91% 9.04% 18.39% 12.52% 9.34% 0.88 18.30% 1.60% 0.31% 8.91% 1.20% 9.20% RONW 15.23% 20.88 7. Jammu & Kashmir Bank Ltd.10% 7.5 13.31% 15.50% 1.24 8.50% 1.87% PE Ratio Dividend Yield 24.75% 4.68% 22.26% 18.47% Valuation Parameters ROE (FY-11) 16. 1.97 17. Lakshmi Vilas Bank Ltd.47% 3.49% 15.96 19.30% 16. In all important parameters like ROA. has been quoting at a significant valuation discount to them.34% NPM 16.00% 0.80% 8.89% 0. Dhanlaxmi Bank Ltd.Comparative Valuations Peer Banks Private Sector HDFC Bank Ltd.54% 1.05% 19.06% 14. Axis Bank Ltd.17% 17.
Financials “ Specialists in discovering Multibagger stocks “ .
3 % 223 1.2 FY 13E 1118 384 1502 327 645 158 158 536 50.3 % 18.5 % 20.6 % 174 1.9 FY 12E 902 318 1220 263 525 107 103 482 45.7 % 286 Specialists in discovering Multibagger stocks “ .7 % 22.6 44. • There has been a compression in margins due to cyclical factors in banking. We expect margins to rebound from FY-14. • Provisioning demand will start to moderate which will provide a strong boost to the bottom-line of Karur Vysya Bank. ROAA % ROAE % Adjusted Book Value 1.7 % 22.Earnings Projection Income Statement (INR Cr) FY 10 Net Interest Income Other Income Total Income Salaries Overheads Total Provisions Tax PAT Diluted EPS 564 247 812 163 349 37 90 336 62.2 % 251 1. • We don’t expect any significant equity dilution in the coming 2 years and hence ROE will increase owing to better leverage of funds.2 FY 11 766 264 1031 229 430 39 146 415.1 • KVB’s top-line will grow at a healthy pace due to strong growth in its lending book and Other income growth.
) Low CASA Ratio : KVB’s lower CASA ratio is a matter of concern and the management intends to shore this up in the coming quarters which will help in better margins. Company has tied up with M&M Finance to provide tractor loans to its clients. company works with NBFC’s to sell customized lending solutions to its customers. high interest rates led retail customers to move to competing savings products and attractive FD’s. 3.Concerns & Reasoning 1. But. Evidently these get reflected in the lower ROA’s and ROE’s. the bank hopes to boost its Fee income which is a strong source for profits. With the Interest rate cycle reversal. 4. NIM’s etc. 2. new branch addition etc. This is due to steep interest rate increase. Growth in expenses will moderate and this along with stabilizing NIM’s will help the banks bottom-line to grow at a similar pace to that of its top-line. Thus. Treasury Operations. “ Specialists in discovering Multibagger stocks “ . we expect the bank to maintain or slightly improve its Return ratios going forward. Provisioning.) Muted Bottom-line Growth in the past 2 years : Banks bottom-line has not grown significantly because of the compressions in margins. Moreover.) Decreasing Return Ratios : Banking being a cyclical industry goes through bad phases (past 2 years) when there is a huge increase in the interest rates which affects NPA’s. KVB’s branch addition will help it in building a strong CASA franchise in the coming years.) Lower Retail Assets: KVB’s loan portfolio has very little Auto loans. Personal loans etc.
Conclusion “ Specialists in discovering Multibagger stocks “ .
23 Promoters 3. we expect the stock to break out of its trading range and deliver good returns for its shareholders.43 4.83 Mar 2011 3. • KVB has been trapped in a price range with very little price volatility.46 22.26 FII DII 21.2 6.79 June 2011 3.27 20.Price Chart KVB Price Range Share Holding % Dec 2011 Sept 2011 3. It has out-performed BANKEX by a significant margin. “ Specialists in discovering Multibagger stocks “ .68 • KVB is the best performing banking stock in the past 12 months.51 21. With good results expected over the next 2 quarters.63 4.92 6. This shows the stability of the stock.
21. Big Bull Rakesh Jhunjhunwala holds over 4. “ Specialists in discovering Multibagger stocks “ . 2012.3% stake in KVB.) Olympus Capital – 4. increased scale of operations and higher Return ratios will tend to trade at >2X Book value in the future. 2012.KVB’s Attractiveness • KVB has been trading at the middle end of its historic valuations in spite of better business performance.91% on Mar-9.) Chryscapital – 3.) Wharol – 1 Million shares on Mar-20. the stock will be ready for a good bounce.2012. • Stocks attractiveness has attracted a lot of good investors (or) Smart money with the likes of Chryscapital picking up a significant chunk in the bank. 3.8% on Mar. P/E Band • KVB with improved fundamentals. • Indian Market’s Legendary investor Rakesh Jhunjhunwala continues to hold KVB stock for more than 15 years which shows his conviction in the growth of the bank. 2. • Once shares change hands from weak investors to smart investors. Recent Bulk Deals in KVB :- 1.) Goldman Sachs – 0. 2012.8% on Apr-18. 3.
country’s banks should grow at a rate of 2. HDFC etc. It’s hugely undervalued when compared to other well-run private sector peers like Yes Bank. This is for a Bank which has one of the lowest NPA’s. KVB’s uninterrupted dividend along with its present Dividend Yield of over 3% makes it highly attractive. Axis. “ Specialists in discovering Multibagger stocks “ . Its not rocket science to understand that. We are buying into a strong compounding stock at the lower end of its historic valuations. High ROE’s. Karur Vysya Bank is a perfect SIP stock. compared to what the Bank gives for its FD Holders.4X its Projected Book and less than 8X its Fy-13 Earnings. Accumulate the stock and just look at the Wealth creation that happens in the next few years. Moreover. Hence. IndusInd Bank.5 times the GDP growth and Karur Vysya Bank being a well run bank should definitely out perform the industry by a few basis points and that is a very serious growth of over 20% consistently. With its low base. When the country is expected to grow at near double digit rates over the next several years. In short .KVB stock will be able to give >2X returns. KVB will continue to increase its market share profitably. the Bank’s inherent +20% profit growth along with scope for valuation expansion will lead to strong returns for its long term shareholders. Karur Vysya Bank’s margin levers along with its increasing scale is not being reflected in its stock price.Conclusion We believe that Indian Banks are the best proxies to profit from the Country’s growth. Low Cost/Income Ratio and Highest Net Profit/ Total Assets which indicates the quality of its operations. we are buying into the stock at attractive valuations. Risk in the investment is very low considering its consistent Performance under difficult circumstances over the past several decades. A well managed Private sector Bank with the best Industry Parameters is available at 1.
Your Partner in Wealth Creation For additional details. Call Us @ +91 9886736791 .Sit back and Relax while your Money works Hard for you A Fund which is backed by the Best Equity Research A Fund which invests in Strong secular growth companies which will be the leaders of the Next Bull Market ! HBJ Capital Ventures LLP .
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