Is Karnataka Bank ripe for stock picking, more so because it corrected over 20 per cent so far in 2018 Well, select brokerages are giving a thumbs-up to the lender.
An over 90 per cent year-on-year fall in quarterly profit appears no spoiler.They have some logic.
Brokerage firm Edelweiss Securities believes that Karnataka Bank is focused on improving its retail proportion, which will help sustain revenue traction.
Lower coverage ratio is likely to keep credit cost elevated.
At the current market price, the stock trades at 0.7 times FY20E P/ABV, capturing risks and limiting downside.
We maintain Buy on Karnataka Bank with target price of Rs 163, Edelweiss said.
The scrip was flat at Rs 116.90 on Thursday morning.The target price works out nearly 40 per cent higher than the current market price.Karnataka Bank has reported 92 per cent drop in net profit at Rs 11 crore for the March quarter due to multi-fold jump in provisioning for bad assets.
The management said the lender took entire NPA stress in Q4 and gross NPA was within the 5 per cent target, which was a mood lifter.
Provisioning for bad loans and contingencies was raised over three times to Rs 541.75 crore during the March quarter against Rs 160.40 crore a year ago.Income during the quarter rose to Rs 1,737.55 crore, from Rs 1,606.19 crore earlier.Edelweiss added that higher slippages masked an otherwise operationally steady quarter.
Loans grew by over 27 per cent annually, aided by strong show in the corporate segment (up over 45 per cent yoy) and better net interest margins (one-off impact of IT refund, steady otherwise).
This led to healthy NII traction.
A control over opex led to an improvement in operating profitability, too.
Nirmal Bank Securities revised target price upwards to Rs 150, from Rs 147 earlier, post quarterly numbers of Karnataka Bank.
KBL has taken significant cognisance of RBIs February 2018 circular overhauling resolution of stressed assets and recognised various outstanding restructuring dispensations as NPAs.
It did not avail the RBI dispensation for spreading MTM losses on investment portfolio and dispensation for the hit because of enhancement of gratuity limit.
These factors masked strong operating performance that was driven by NIM expansion, improved opex control and strong fee income traction, Nirmal Bang Securities said in a report.For 2017-18, the bank said its net profit fell to Rs 325.61 crore from Rs 452.26 crore.
Income during the year was up at Rs 6,378.09 crore, from the earlier Rs 5,994.74 crore.
Provisioning amount for the full year more than doubled to Rs 1,163.01 crore against Rs 527.85 crore in the preceding year.