Edelweiss’ research report on Karnataka Bank
Karnataka Bank (KBL) reported Q4FY18 PAT of INR118mn, lower than our estimate on higher credit cost, even while core profitability surpassed estimate. Slippages rose to >9% given RBIs recent asset reclassification norm and divergence impact. Operationally, Q4FY18 clocked improving performance and was characterised by better revenue traction and controlled opex (up <8% YoY).
KBL is focused on improving its retail proportion, which will help sustain revenue traction. Having said that, lower coverage ratio is likely to keep credit cost elevated. At CMP, the stock trades at 0.7x FY20E P/ABV, capturing risks and limiting downside. We maintain BUY/SP with TP of INR163 (maintaining 1.0x FY20E P/ABV).
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