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Karur Vysya: No smooth ride

Aug 12, 2002

Karur Vysya Bank (KVB) has reported a moderate growth in both profits and topline for the first quarter ended June 2002. The growth pace of the bank slowed down in the first quarter on account of lower investment income and pressure on margins.

(Rs m)1QFY021QFY03Change
Income from operations 1,167 1,269 8.7%
Other Income 190 205 8.1%
Interest expense 798 896 12.3%
Net interest income 369 372 0.8%
Other expenses 220 222 0.9%
Operating Profit 150 151 0.7%
Operating Profit Margin (%)12.8%11.9% 
Provisions and contingencies 74 92 24.3%
Profit before Tax 266 264-0.5%
Tax 70 42-40.6%
Profit after Tax/(Loss) 196 22313.8%
Net profit margin (%)16.8%17.5% 
No. of Shares (m) 6.0 6.0  
Diluted Earnings per share*130.3148.3 
P/E Ratio 3.0 

The bank's core interest income from advances increased by 5% in the first quarter after having fallen by a similar percentage in FY02. Revival in credit demand in June quarter seems to have fueled the bank's loan growth and consequently interest income. The bank is likely to face challenging business conditions in the current year with scanty rains in Tamilnadu where large number of its branches are located. As a result, the bank may not be able to achieve its deposit target of Rs 50 bn, a growth of 20% in the current fiscal.

Interest income mix
(Rs m)1QFY021QFY03Change
Interest on advances 715 752 5.2%
Income on investments 376 395 5.1%
Interest on balance with RBI & others 76 122 59.7%
Total 1,167 1,269 8.7%

On a YoY basis, the bank's operating margins dipped by over 90 basis points to 11.9% on the back of higher interest cost. OPM was however, marginally up from 11.8% in FY02. KVB continued striving for cost efficiencies which saw a further decline in cost to income ratio - 38% in 1QFY03 from 39% in the comparable quarter of the previous year. The bank has computerized 85% of its business and aims to increase the ratio to 95% in FY03. It has also taken core banking solution, 'Flexcube' from i-flex. Implementation of this software is expected to improve KVB's customers services and improve business productivity.

At the current market price of Rs 439, KVB is trading at a P/E of 3x and price to book value ratio of 0.6x. The bank has declared bonus issue in the ratio of 1:1 and also rights shares in the ratio of 1:1 at a premium of Rs 50 per share in the last Annual General Meeting. Over the last three months, the bank's stock has witnessed a good buying interest in expectation of increasing consolidation activity in the sector. 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. Moreover, the bank's asset quality is not a cause for concern.

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