October 28, 2010

BANKING
Q2FY11 REVIEW

Institutional Equities Karur Vysya Bank (Rs592)

Under Performer
India Research Target Price: Rs452

Stock Data Treasury income boosts performance

Bloomberg Code
Market Cap. (Rs bn / US$ mn)
52-week High/Low (Rs)
Shares Outstanding (mn)
Avg. daily volume ('000)
Avg. daily value (Rs mn)
KVB.IN
In Q2FY11, Karur Vysya Bank (KVB) net profit was below our estimates by 22.0%
40.4/907.8 to Rs1.03 bn primarily due to higher tax and employee expenses. NII was
marginally lesser than our estimates by 1.6% to Rs1.7 bn and non interest
639/248
income was higher than our estimates by 44.7% to Rs781 mn.
76.2
• Robust growth in loan book supports NII: In Q2FY11 KVB's NII grew by
152.7 25.2% (Y/Y) and 2.1% (Q/Q) to Rs1.7 bn on back of 27.5% (Y/Y) and 5.9% (Q/
92.4 Q) expansion in loan book to Rs150.4 bn.

Promoter holding (%) 3.5 • Asset quality improves sequentially: During the quarter the bank's asset
quality showed stability sequentially, with gross NPA's and Net NPA's at
Free float (%) 96.5 Rs2.4 bn and 245 mn respectively. Gross NPA ratio improved to 1.55% from
FII holding (%) 21.8 1.67% in Q1FY11 and net NPA ratio at 0.16% from 0.17% in Q1FY11.
• Treasury income supports non interest income: Non interest income
increased by 42.4% (Y/Y) and 49.7% (Q/Q) to Rs781 mn primarily due to
Relative Performance strong treasury income of 220 mn in Q2FY11 compared to Rs55 mn in
2QFY10 and Rs20 mn in Q1FY10,
140

90

40

-10
Oct-09 Apr-10 Oct-10 (Rs mn) FY2008 FY2009 FY2010 FY2011E FY2012E
KVB Sensex Total Net Income 5,240 6,756 8,119 10,201 12,762
Profit before provisions 3,078 4,180 4,632 5,979 7,944
NIM (%) 2.7 2.7 3.0 3.1 3.2
BSE Sensex 19,941
Net Profit 2,083 2,358 3,360 3,990 5,341
EPS (Rs) 22 25 36 40 50
EPS Growth (%) (32) 13 42 10 25
PE (x) 23.8 21.0 14.8 13.4 10.7
Price/Book Value (x) 4.2 3.7 3.1 2.3 2.1
Price/Adjusted Book Value (x) 4.2 3.7 3.1 2.3 2.1
Dividend Yield (%) 2.2 2.2 2.2 2.4 2.6
Rakesh Kumar Cost-to-income (%) 41 38 43 41 38
rakesh.kumar@karvy.com ROA (%) 1.6 1.5 1.7 1.6 1.7
+91-22-22895028 ROE (%) 18.5 18.6 22.6 20.1 21.0
Tier-1 Capital (%) 12.1 12.6 12.9 13.9 12.3
Paresh Jain
+91-22-22895025 Source: Company and Karvy Institutional Research

Karvy Institutional Equities • 2nd Floor, Regent Chambers, Nariman Point - Mumbai 400 021 • +91-22-2289 5000.

For Private Circulation only. For important information about Karvys’ rating system and other disclosures refer to the end of this material.
Karvy Stock Broking Research is also available on: Bloomberg - KRVY <GO>, Thomson Publisher & Reuters.
 October 28, 2010

Institutional Equities Karur Vysya Bank

Quarterly Performance
Rs mn Q2FY10 Q1FY11 Q2FY11 YoY (%) QoQ (%)
Interest on Advances 3331 3716 3874 16 4
Interest on Investments 925 1204 1309 41 9
Interest on inter-bank funds 0 0 0 100 (50)
Other Interest 84 0 1
Total Interest Income 4340 4921 5184 19 5
Total Interest Expenditure 2949 3215 3442 17 7
Net interest income 1391 1706 1742 25 2
Fee income 493 502 562 14 12
Treasury Income 55 20 220 297 998
Total other operating income 549 522 781 42 50
Total Net Income 1940 2228 2523 30 13
Overheads 798 928 1073 34 16
Operating profit 1141 1300 1451 27 12
Tax 32 421 236 630 (44)
Prov. For NPAs 98 40 50 (49) 25
Total Provisions (Ex. Tax Prov.) 200 34 188
Net profit 909 845 1026 13 21
Equity 539 544 762
EPS ( in unit INR) 16.9 15.5 13.5 (20) (13)
Gross Non Performing Assets 1948 2367 2369 22 0
Net Non Performing Assets 265 243 245 (6) 1
GNPA (%) 1.8 1.7 1.6
NNPA (%) 0.2 0.2 0.2
RoA (%) 2.0 1.5 1.7

Key highlights
• In 2QFY11 deposits grew by 28.6% (Y/Y) and 4.8% (Q/Q) to Rs212.5 bn and CASA
deposits grew by 39.4% (Y/Y) and 10.6% (Q/Q) to Rs53.8 bn. During the quarter
CASA share of the bank stood at 25.3% from 24.0% in 2QFY10 and 23.4% 1QFY11.
• During the quarter operating expenses increased by 34.4% (Y/Y) and 15.6% (Q/Q)
to Rs1.1 bn. Employee cost increased by 64.5% (Y/Y) and 15.5% (Q/Q) to Rs581 mn
and other expenses increased by 10.4% (Y/Y) and 15.6% (Q/Q) to Rs491 mn
• In 2QFY11, the bank's margins declined sequentially by 7 bps to 3.3% as yields on
advances declined by 4 bps to 10.94% and cost of funds increased marginally by 3
bps to 6.53% during the same period.
• During the quarter, the bank restructured loans amounting to Rs288mn and
slippages amounted to Rs98 mn. However there was a recovery of Rs913 mn. As a
result the cumulative restructured loans amounted to Rs4.9 bn from Rs5.6 bn in
Q1FY11.
We maintain our earning estimates for FY11 and FY12 and our target price at Rs452
and change our stock rating to 'Under performer' from Market performer rating due to
increase in market price of the stock. At current price the stock trades at 2.1x adjusted
book value FY12, based on our target price the stock would quote at 1.8x ABV FY12.

2
 Institutional Equities

Stock Ratings Absolute Returns

Buy : > 25%
Out Performer : 16 - 25%
Market Performer : 0 - 15%
Under Performer : < 0%
Sell : <(25%)

Hemindra Hazari
(Head of Research)
hemindra.hazari@karvy.com

For further enquiries please contact:

research@karvy.com
Tel: +91-22-22895000

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