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Karur Vysya Bank: Long way to go - Views on News from Equitymaster
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  • Sep 25, 2000

    Karur Vysya Bank: Long way to go

    The Karur Vysya Bank Ltd. (KVB) has been ranked as one of the top five banks in the private sector. The bank has a strong hold in the South with a total of 206 branches across the nation. It is one of the oldest private sector banks operating in India since 1916.

    KVB derives 38% of its income from investments and 49% from normal banking operations. It is operating actively in foreign exchange segment. In FY00, forex turnover of the bank reported a YoY growth of 29% to Rs 17.3 bn. The bank’s advances registered a YoY growth of 25% and deposits grew at the rate of 22% in FY00. It operating profit and net profit in the past three years have shown a remarkable performance by growing at a faster rate than operating income.

    Financial performance
    Particulars FY98 FY99 FY00 CAGR (3 years)
    Operating income 2,669 3,376 4,180 25.2%
    Total revenues 3,324 3,784 4,758 19.6%
    Operating profit 828 907 1,370 28.6%
    Provision & Contingencies 182 106 164 -5.0%
    Other Expenses 653 698 857 14.6%
    Profit before tax 649 511 927 19.5%
    Profit after tax 435 370 711 27.8%
    Number of shares 6.0 6.0 6.0  

    The key ratios of the bank compare well with the other private sector banks. FY99 was abnormal year for the bank due to softer interest rate regime and pressure on margins with increasing competition. The net NPA ratio of the bank during FY00 has come down to 3.8% from 4.4% in FY99. KVB also has a healthy capital adequacy ratio of 15.2% allowing it to maintain its growth rate.

    Measure of performance
    Particulars FY98 FY99 FY00
    Operating margin (excl. O.I.) 31.0% 26.9% 32.8%
    Net profit margin 16.3% 11.0% 17.0%
    Fully Diluted EPS 72.6 61.7 118.6
    Profit/employee (Rs m) 0.2 0.1 0.3
    Profit/branch (Rs m) 2.2 1.8 3.5
    Credit/Deposit ratio 54.0% 57.0% 58.5%

    Among the private sector banks, KVB gets lower valuations due to its slow adaptation to the latest technology and value added products offerings. Lower liquidity of the stock also affects its market valuations. On the other hand HDFC Bank and ICICI Bank gets premium valuations in the market because of their increasing customer oriented approach, well spread branch network and operational efficiency through technology improvement. These banks are a one-stop shop for all types of financial products. Today the valuations in the banking sector are accorded to stocks, which offer the best services to customers through multi channels and have future growth potential.

    Particulars KVB HDFC
    Global Trust
    Market Price (Rs) 162.0 221.8 159.0 68.2 36.0
    P/E (x) 1.4 37.4 29.7 7.6 9.3
    Book value (Rs) 434.5 30.9 58.4 43.5 18.2
    Price/Book value (x) 0.4 7.2 2.7 1.6 2



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