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Axis Securities Report
With potential hiring expected for expansion plans, we believe, Karnataka Bank Ltd.'s cost-income ratio would inch up to 49-50% in the near term. Thus, with opex expected to uptick, pre-provision operating profit would remain under pressure.
Slippages are expected to remain at current levels and non-performing asset is to report at 1.2% for FY24. Thus credit cost is expected to remain stable, thereby aiding profitability.
We believe healthy advances in growth, stable margins, and better asset quality would offset the impact of the increase in opex. Thus, we remain confident in the bank's ability to report a sustainable return on asset of +1.2% over FY24-25E.
Valuation and recommendation:
Karnataka Bank presently trades at 0.7 FY25E adjusted book value, however, with growth prospects intact, we maintain our ‘Buy' rating on the stock with a revised target price of Rs 250/share (0.8 times FY25E ABV), implying an upside of 16% from the current market price.
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