Anand Rathi Share and Stock Brokers Limited has reiterated a decisive BUY call on Karur Vysya Bank (KVB), pegging a 12-month target price at Rs338 against its current market price of Rs271. The report underscores robust profitability, exceptional asset quality, and healthy growth momentum in key segments, positioning the stock as a compelling opportunity for both institutional and retail investors. With an estimated sustainable RoE north of 15% and continued reduction in stressed assets, KVB shines amid a competitive Indian banking landscape.

Strong Recommendation with Upbeat Target

Anand Rathi recommends buying Karur Vysya Bank with a 12-month target price of Rs338, implying about 25% potential upside from current levels. The brokerage applies a 1.5x P/ABV multiple on FY28e book value, backed by a two-stage DDM valuation. This valuation underscores confidence in KVB’s capital efficiency, earnings predictability, and re-rating potential as the market recognizes its execution in retail and SME lending.

Q1 FY25 in Review: Stellar Asset Quality and Resilient Profitability

The bank reported an RoA of 1.73% in Q1 FY25, sustaining profitability despite compressing net interest margins. GNPA improved to just 0.66% (down 10bps QoQ), while Net NPA reached a record low of 0.19%. Slippages stayed below 1%, even as a substantial fraction of the loan book is SME-focused—a segment typically prone to stress in volatile cycles.

The standard restructured loan book now stands at a negligible 0.57% of advances, emphasizing de-risking and prudent underwriting. SMA-30 exposure is a mere 0.6% of the loan book, one of the lowest among peers. The bank’s asset quality thus stands as a fortress—ready to weather macro uncertainty.

Growth Engine: Retail and SME Lending Lead the Charge

Core retail advances surged 20% YoY, with SME loans up by 19% YoY. This growth trajectory, consistently above industry averages, highlights KVB’s penetration in high-yield, granular lending pockets. The commercial and farm segments collectively comprise over 60% of total advances, providing the bank with diversified growth avenues away from traditionally lumpy corporate loans.

Advances are projected to grow 13-14% annually through FY28, buoyed by strong execution in expanding high-margin loan segments. The bank’s ability to drive double-digit growth while maintaining underwriting discipline adds a layer of credibility to the management’s outlook.

Exceptional Cost and Provision Controls

Operating expenses remain contained, with the cost-to-income ratio forecast to fall from 48.3% (FY24) to an estimated 46.1% by FY28. This efficiency is driven by digital transformation and process optimization.

Provisioning requirements have sharply moderated. Provisions for FY25 are estimated at Rs6.2bn, lower than prior cycles, as most stress has already been resolved or provided for. The provision coverage ratio is set to improve to 75% by FY28, cementing capital resilience.

Valuation: Attractive Relative and Absolute Metrics

KVB trades at a compelling 1.2x price-to-book (FY28e) with a P/E of just 8.4x, suggesting significant headroom for re-rating as profitability endures. Future returns will be driven by:

Healthy RoA, consistently at or above 1.6%

Strong RoE expectations (15-17% through FY28)

Stable net interest margins (around 4%)

Reduction in gross and net NPA ratios further improving investor confidence

The following HTML table summarizes key financial levels and valuation ratios:

Shareholding and Market Cap Snapshot

KVB boasts a market capitalization of Rs218bn, with free float constituting nearly 98% of shares outstanding. Foreign institutions hold a 15.4% stake, while domestic institutional investors hold close to 40%, reflecting broad-based confidence in the stock. The public holds a significant 43% share, indicating strong retail participation.

Potential Catalysts and Risks

Key drivers for re-rating include:

Expanding loan market share, especially in under-penetrated retail and SME geographies

Sustained reduction in slippages, with management guidance on keeping fresh NPAs below 1%

Strategic cost management and digitization initiatives

Risks involve:

Sudden lumpy slippages in the corporate book

Deterioration in the SME loan portfolio, potentially affecting asset quality and earnings

Investor Takeaways and Trading Levels

The stock currently trades at just above Rs271, not far from its 52-week high of Rs278, signaling sustained market optimism. With a 12-month price target of Rs338, investors stand to see attractive risk-adjusted gains, accompanied by improving fundamentals.

Levels to Watch:

Support: Rs250 (near-term technical base)

Resistance: Rs278 (recent high) and Rs338 (12-month brokerage target)

In summary, Anand Rathi’s conviction in Karur Vysya Bank derives from its strong franchise, proven management, disciplined risk controls, and a visible runway for high-teen returns. Investors seeking an undervalued, high-quality regional bank with robust growth and conservative underwriting should keep a close eye on KVB in the quarters ahead.