Karur Vysya Bank – Quarterly Results Update

Result Highlights

Net Interest Income stood at Rs. 897 crores in Q1FY24, showing a nominal growth of

0.5% QoQ / up 20.3% YoY. Pre-provision operating profit (PPOP) stood at Rs. 648 crores in

Q1FY24, showing a substantial decline of 12.3% QoQ / up 36.5% YoY. 

Provisions saw a sharp drop to Rs. 159 crores in Q1FY24 from Rs. 293 crores in Q4FY23 and Rs. 154.6 crores in Q1FY23. The bank’s quarterly net profit saw a bumper jump to Rs. 359 crores in Q1FY24, up 6.2% QoQ / up 183.1% YoY, surpassing market expectations of Rs. 325 crores. NIM stood at 4.19% in Q1FY24, down 18bps QoQ / up 34bps YoY. 

The sequential decline in NIMs was mainly on account of the rise in the cost of funds. Gross NPA stood at 1.99% in Q1FY24, down 28bps QoQ / down 322bps YoY. Net NPA stood at 0.59% in Q1FY24, down 15bps QoQ / down 132bps YoY. Capital Adequacy Ratio showed a decline and stood at 17.67% in Q1FY24 compared to 18.56% in Q4FY23 and 18.95% in Q1FY23. Gross Deposits showed a decent growth at Rs. 80,715 crores in Q1FY24, up 5.3% QoQ / up 13.4% YoY. Gross Advances stood at Rs. 68,636 crores in Q1FY24, up 7.0% QoQ / up 15.1% YoY. CASA stood at 33.0% in Q1FY24 compared to 37.0% in Q1FY23.

Key Concall Highlights

• Gross advances growth was above the bank’s annual guided growth of 14% and the trend would continue if there are no contingent challenges as per the management. The outcome from the acquisition team would be visible from the second half of the year.

• NIM compression to be continued in Q2FY24 as well in the range of 4%. This would be on account of fresh deposit accretion that will further increase the cost of deposits to the extent of around 20bps in the second quarter, assuming no change in deposit rates. The bank expects a 10bps increase in the yield on advances during the second quarter because of the repricing of loans on account of MCLR.

• Cost to income ratio remained elevated sequentially but within the guided limit. This was on account of lower recovery in technically written-off accounts and lower write-back of depreciation on the income side and an increase in employee cost on account of one-time performance incentives.

• The bank’s efforts on recovery of technically written-off book and lower slippages have resulted in gross NPAs moving below 2% and the management is expecting it to sustain below 2% in the coming quarters.

• During Q1FY24, the bank opened nine branches and opened one digital banking unit in Chennai, and the management has guided that another 38 branches will be opened during FY24.

• In FY23, the bank has done experimenting with NEO banking by creating a new home loan branch at Hyderabad followed by Bangalore and Chennai and has already started working well generating around Rs. 200 crores of outstanding in the last eight months.

• The elevated cost-to-income ratio in the first half of FY24 will be compensated in the second half due to recovery from return of accounts and as per the guidance, the cost-to-income ratio will be in the range of 45-50% in FY24.the range of 45-50% in FY24.

Valuation and Outlook

Karur Vysya Bank reported a stellar performance in Q1FY24, with net profit registering a strong 183% annual growth and asset quality improving on account of a decline in NPAs and credit costs. Though the bank faced some NIM pressure of about 18bps on a quarterly basis, it was guided by the management in advance. As expected, the bank was able to lower its credit costs on account of the stable macro-environment, lower incremental slippages and improvement in recoveries. 

Going forward, we feel that the company’s strategic plan to focus on improving profitability along with keeping its asset quality in check will continue after the RBI approved the bank’s request to re-appoint B Ramesh Babu as MD and CEO for a three-year term. Also, the bank’s co-lending initiative with the NEO bank will help the bank to improve its profitability in the long run. Thus, we are positive that the bank’s RoE and RoA will be on an incremental growth path and our outlook remains constructive