Karur Vysya: Tough times ahead - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Karur Vysya: Tough times ahead

Jun 3, 2002

Karur Vysya Bank (KVB) reported strong fourth quarter performance powered by higher investment income and lower provisions. The bank's interest income from advances however, declined by 6% in the last quarter with lower credit offtake.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Income from operations 1,090 1,435 31.6% 4,612 4,823 4.6%
Other Income 369 284 -23.0% 539 1,047 94.4%
Interest expense 809 811 0.3% 3,057 3,177 3.9%
Net interest income 281 624 121.8% 1,555 1,646 5.9%
Other expenses 395 394 -0.1% 988 1,075 8.9%
Operating Profit (113) 229 - 567 571 0.7%
Operating Profit Margin (%)-10.4%16.0% 12.3%11.8% 
Provisions and contingencies (29) (7)-76.0% 207 180-13.0%
Profit before Tax 285 52082.7% 899 1,43860.0%
Tax 71 44-38.1% 178 35397.7%
Profit after Tax/(Loss) 214 477122.4% 721 1,08550.6%
Net profit margin (%)19.7%33.2% 15.6%22.5% 
No. of Shares (m) 6.0 6.0   6.0 6.0  
Diluted Earnings per share*142.9317.8 120.1180.9 
P/E Ratio 1.3  2.4 

FY02 was a challenging year for the banking sector, as demand for loans from corporate sector, which accounts for larger proportion of banks' total income declined substantially. Nevertheless, private sector banks in general outperformed the sector with a strong rise in interest income. This was achieved by increasing the proportion of retail loans. KVB however, failed to stop the slide in this core income due to its regional nature and stiff competition in the retail finance market. The bank's total advances grew by 9% in FY02.

The bank's investment income nearly doubled, as the bank was holding on longer maturity government securities portfolio, which offered higher interest income despite a sharp drop in interest rates in the last one year. However, as interest rates stabilized during the end of fourth quarter, the bank is expected to have booked trading losses in its investment portfolio, which is visible from a 23% decline in other income in the last quarter. If the bank continued to hold long maturity portfolio, it is likely to report capital losses as interest rates are unlikely to fall sharply in the current year.

Interest income mix
(Rs m)4QFY014QFY02ChangeFY01FY02Change
Interest on advances 647 611 -5.6% 2,668 2,535 -5.0%
Income on investments 367 705 92.4% 1,683 1,916 13.9%
Interest on balance with RBI 76 118 55.4% 258 370 43.2%
Others 1 1 80.0% 3 2 -14.3%
Total 1,090 1,435 31.6% 4,612 4,823 4.6%

The bank's operating profit margins improved sharply in the fourth quarter, with a drop in cost to income ratio (from 61% in 4QFY01 to 43%). This coupled with lower provision for NPAs fueled the bank's net profits.

At the current market price of Rs 428, KVB is trading at a P/E of 2.4x and price to book value ratio of 0.6x. Over the last one month, the bank's stock has witnessed a sharp rise in expectation of increasing consolidation activity in the sector. Its higher capital adequacy ratio (CAR) of 17% will allow it to expand its business operations. But considering its peers proactiveness, the bank is still lagging behind, both in terms of technology and product expansion. Notwithstanding the good quality of its assets, valuations would be re-rated once the bank's business growth increases and it make efforts to stand in line with its private sector peers. Also, considering its regional nature (south based) it could become a take over target, which could trigger re-rating of valuations.

Equitymaster requests your view! Post a comment on "Karur Vysya: Tough times ahead". Click here!


More Views on News

HDFC Bank vs Kotak Mahindra Bank: Which Stock is Better? (Views On News)

Jan 21, 2022

These two banks epitomize high quality financial management. Check out how they fare against each other.

HDFC Bank vs ICICI Bank: Which Stock is Better? (Views On News)

Jan 6, 2022

HDFC Bank reigns over the banking industry. However, ICICI Bank is inching closer in terms of financial performance. Which bank will emerge as a leader?

7 Stocks that Mutual Funds Can't get Enough of (Views On News)

Dec 1, 2021

Come hell or high water, these are the top Indian stocks which mutual funds never leave.

5 Indian Banks with the Lowest NPAs. Here's How they Did It... (Views On News)

Sep 27, 2021

These banks have managed to maintain their asset quality even in the middle of a pandemic.

PNB Reports an Over Three-Fold Jump in Net Profit as Provisions Fall (Views On News)

Aug 3, 2021

The reduction in provisions for bad loans and asset quality stability may have aided the lender's earnings.

More Views on News

Most Popular

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

5 Hidden Tata Group Companies to Add to Your Watchlist (Views On News)

Jan 18, 2022

Here's all you need to know about these five Tata group stocks that aren't as popular as the others.

Insiders are Buying into these 6 Stocks Aggressively. More Details here... (Views On News)

Jan 19, 2022

While promoter holding is an important parameter, it should not be the sole reason for buying a stock.

Top Indian Drone Companies to Watch Out for in 2022 (Views On News)

Jan 21, 2022

Several companies are adopting drone technology for regular business operations.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 28, 2022 (Close)


  • Track your investment in KARUR VYSYA BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks