Karur Vysya Bank (Buy)

Target: ₹300

CMP: ₹227.55

Karur Vysya Bank (KVB) reported yet another strong quarter with Q3FY25 PAT of ₹496 crore, up around 21 per cent y-o-y (4 per cent beat). RoA sustained at over 1.65 per cent for fifth consecutive quarter. Asset quality continues to surprise with net slippages at 0.2 per cent annualised.

Net slippages, adjusted for technical w-offs (TWO) recovery, remained negative while net NPA improved further to 20 bps. Granular growth remains strong at around 20 per cent y-o-y though overall growth was restricted to 15 per cent y-o-y due to conscious de-bulking of corporate book.

Muted fee income growth and soft CASA growth, however, were irritants. Despite modelling in NIM compression and slight normalisation in TWO recoveries, we estimate the bank to deliver broadly steady around 1.6 per cent RoA and around 16 per cent RoE for FY26.

In current cycle, KVB has built strong resilience in growth (strong edge on cost of funds; diversified book), opex (front-loaded investments in manpower, tech) and asset quality (one of the few banks to see improving credit costs) and thus RoA longevity. We also highlight healthy option value once deposits/unsecured PL environment improves.