- 1. Our key objective is to pick stocks which can compound
sustainably ata healthy rate for the next 3-5 years and create
wealth. We like toselect companies with strong competitive
advantages and are quoting ata discount to their intrinsic value.s
(SIP) - Best Way to Grow your wealth
2. Karur Vysya Bank (KVB)- Highly Efficient Mid-Cap Bank + A
Steady Compounder 3. Content Index Karur Vysya Bank Investment
Snapshot :- Slide #4 Industry Opportunity An Overview:- Slide #6
Karur Vysya Bank Business Overview :- Slide #11 Investment
Rationale :- Slide #17 Karur Vysya Bank Financials:- Slide #23
Concerns & Reasoning :- Slide #25 Conclusion :- Slide #29
Specialists in discovering Multibagger stocks 4. Karur Vysya Bank
(KVB) Investment Snapshot(as on April 26, 2012)Recommendation :-
BUYKVB was started in the year 1916 in Karur by the duo
ofAccumulation Range :- 370-400M.A.Venkatarama Chettiar & Athi
Krishna Chettiar with aReturns Expected :- ~25% CAGRseed capital of
just around 1 Lakh Rs.Current Market Price Rs. 400.75KVB has since
then consistently grown into a leading financial institution,
offering banking services to MillionsBloomberg / Reuters Code KVB
IN/ KARU.BO of customers and a Market Capitalization of 4300 Cr Rs.
It is one of the few Old Private sector banks which continuesBSE /
NSE Code 590003 / KARVYS to operate well in the changed
scenario.Mkt Cap (INR BN / USD Mn) 42.91 / 818.9KVB has made
profits consistently for the past 95 years of[1 USD Rs. 52.40]its
banking operations. It has also declared uninterrupted dividend
since its inception.Total Equity Shares [Mn] 107 KVB from being a
Tamilnadu centric bank has startedFace Value Rs. 10expanding its
operation across the nation with the opening of several branches in
North India. This helps in52 Week High / Low Rs. 437 / Rs. 315
diversifying its base and also decrease the risk of geographical
concentration.Promoters Holding 3.26 % Karur Vysya Bank has been a
strong institution with wellInstitutional Holding 27.88 %entrenched
business relationships with its customers. KVB is known for its
Customer Service and Trust amongst its clients, depositors and
shareholders. Specialists in discovering Multibagger stocks 5. Key
Investment HighlightsModern Old Private Sector Bank KVB is one of
the most efficient bank in India. Most of the Old privatesector
banks have not been able to grow out of their geographies or
community base, but KVB is as good asany New-Age Private sector
banks. It is one of the early adopters of technology in their
operations and all itsbranches are CBS enabled. KVB has also been
able to modernize itself on all fronts.Healthy Growth Story KVB has
been growing at a healthy pace over the past several years on all
fronts. ItsNet Profit has been able to Compound at over 20% from
2007-11 which displayed resilience of the banksprofitability in
spite of the economic downturn. Its branch network has increased by
more than 50% in thepast 5 years indicating the potential growth
and Margin expansion in the coming years.Efficiency Parameters KVB
is well capitalized with a strong CAR of over 13.25%. NIMs are
strong at 3.06%,RoAA is at 1.54%, Net NPAs less than 0.3% and
Coverage Ratio of over 80% which shows the operationalquality of
the bank. Bank has been able to maintain low NPAs in spite of
significant business growth over thepast few quarters, indicating
the superior Credit appraisal processes .Share-Holder Friendly Bank
KVB has been a very shareholder friendly bank with a dividend of
120% forthe past 5 years. During FY 2010-11, the bank has rewarded
its shareholders by Bonus shares at 2:5, and alsoissued rights
shares at 2:5 (after bonus) with a low premium of Rs. 140. We
expect similar offering from thebank during its Centenary year of
2016.Hugely Attractive Valuations KVB in spite of above average
fundamentals is not getting the premiumvaluation it deserves. It is
quoting at nearly half the P/B or P/E of banks like HDFC and
IndusInd whichprovides scope for valuation expansion in the coming
days. KVBs attractive valuations has already startedattracting
Smart Money from several reputed investors. Specialists in
discovering Multibagger stocks 6. Industry Opportunity &
Potential- An Overview Specialists in discovering Multibagger
stocks 7. Indian Growth Story Though there are people who have
started to doubt the Indian Growth story, we are very bullish on
it. We feel this is a passing phase and India will get back to a
high growth trajectory. We also believe that the Best of Indian
Growth is ahead of us and the country will enter into a phase where
it will achieve near double-digit growth for several years in a
row. Banking is the best bet to profit from the countrys GDP
growth. As a thumb rule, Banking sector growth is usually 2.5X the
GDP growth. Indian banks are well run and have good return ratios
when compared with banks across the developing economies. With a
strong regulator in RBI, our banking system is mature enough to
handle Macro-Economic risks. Specialists in discovering Multibagger
stocks 8. Robust Banking GrowthHuge Moats for Banks :- India as a
country is still very muchunder banked and there is a hugescope for
improving the bankingpenetration and expanding the system. There
has been no new bankinglicenses issued in the past decade andany
growth in the country is beingshared within the existing banks.
Demand for Financial servicesoutstrips the supply which is
helpingBANKEX has grown from 1,700 tothe banks to grow profitably
and this15,000 in less than 8 years will continue in the next
decade. Banking shares have been one of thetop performers in the
last decade witha high compounding growth. Efficient banks will
continue to garnermarket share and will grow at a higherpace than
the Industry and thesestocks are low-hanging Multi-Baggers.
Specialists in discovering Multibagger stocks 9. Cyclical Banking
Uptrend Indian Banking has suffered a lot during the past 18 months
because of high inflation and steep RBI hikes.Interest rate cycle
has topped out and we can expect the banks to perform well going
forward. High Interest rates affect credit demand, Increases NPA
leading to lower NIMs and Profits for the banks.With RBI reducing
CRR and Repo rate aggressively, we can expect the banking margins
to improve. Banks which are not saddled with high Restructured
Assets will gain from this reversal and continue togrow handsomely
in the coming quarters. Specialists in discovering Multibagger
stocks 10. Bullishness on Private Banks Vs Public Sector Banks
Indian Private sector banks have outperformed Public sector banks
on all fronts and gained a strong foothold. Public sector banks
have to deal with Government Interference, Low Capitalization and
Banking unions which have led to increased volatility in their
business performance over the decade. We are very positive on the
future of the Indian private banks and we believe that they will
continue to gain market share because of their efficiency. Though
PSB stocks are available at cheaper valuation, we think that the
Net Profit Margin markets are pricing the high risk associated with
them. Moreover, even at higher valuations Private Bank stocks have
outperformed PSB by a good margin. Within Private Sector Banks,
efficient banks like KVB has performed even better on both business
and stock markets. Specialists in discovering Multibagger stocks
11. Karur Vysya Bank Business Overview Specialists in discovering
Multibagger stocks 12. Key HighlightsStrong ParametersROE 20%ROA
1.5% NIM 3.06%Cost/ Income 40%Robust Track RecordGross NPA 1.4% Net
NPA 0.29% Branch ExpansionKVBs share price has multiplied by 20X in
the past 10 years and overKVB has been on a branch150X in the past
20 years indicatingexpansion spree. Nearly 150 new the wealth
creation in the stock.branches has been opened in theKVB plans to
achieve Total Business Karur Vysya last 4 years, taking the
totalBranch network to 450. Bank of 1.25 Lakh Cr business by
2016which implies a CAGR of >23%Bankplans to grow its network by
10% YoY in various geographies. Healthy Culture +Excellence
AwardsTrusted Brand Bank has a strong discipline inBank has been
recognized for itsmaintaining its lending mix, risk operational
excellence with Bestmitigation and customer profile. Bank awards
from CNBC, Business-Today, KPMG, IDBRT, FE etc.Management has a
good vision for the bank with strong execution skills and
experience. Specialists in discovering Multibagger stocks 13.
Distribution NetworkSTATEBranches Branch Split-Up MetroTAMILNADU
228CategoryDec 11Rural18%ANDHRA PRADESH 9714% On-site
ATMs433KARNATAKA34MAHARASHTRA25 Off-site ATMs
272Semi-GUJARAT15Urban UrbanKERALA 11Total 705 29% 39%DELHI 8WEST
BENGAL 8 Karur Vysya Bank has a strong Distribution network with
most of itsPUNJAB5 branches located in Tamil Nadu + Andhra Pradesh
where it has a strongHARYANA 4brand image and rich legacy.ORISSA4
Management is opening new branches across India to diversify
andM.P.3reduce its Geographic concentration. Bank has been able to
do goodUTTARPRADESH3 business even from its non-traditional
geographies.PONDICHERY2RAJASTHAN 2 KVB is expanding its branches at
10% YoY and this along with normalCHANDIGARH1 business growth will
help it to achieve its Target Business of 1,25,000 CrCHATTISGARH 1
business from the current 52,000 Cr by 2016.GOA 1 KVB has good % of
its branches in Semi-Urban and Rural markets whichJHARKHAND 1has
helped it to meet its Priority lending targets easily. KVB has also
beenGrand Total 452able to build a strong Agri lending portfolio
over the years. Specialists in discovering Multibagger stocks 14.
Rich History + Fresh Energy Karur Vysya Bank in spite of being one
of the oldest Private sector banks in the country, has been
thefrontrunner in adopting new technologies and changing itself to
meet the need of its young customers. All the 452 Branches of the
bank are CBS enabled. KVB is not burdened with the legacy problems
like otherOLD banks and has also diversified itself from its core
community base. KVB now provides all kinds of new services to its
customers which young private sector banks like ICICI,HDFC and Axis
provide. KVB provides Internet Banking, Credit Cards, Mobile
banking, NRI banking etc. KVB has a strong internal culture which
helps it to grow aggressively without compromising on the qualityof
growth. Top management have been dynamic and highly professional.
Specialists in discovering Multibagger stocks 15. KVB - Banking
Parameters3500030000 KVBs Owned Funds in Rs Cr 3010725000 24722
222632000019272 1805215000151011367512550100001056395695000 007-08
08-09 09-1010-11 Dec 11 Deposits Advances Karur Vysya Bank has been
able to grow its banking operations at a steady rate. In spite of
good growth in Business, KVBs Non- Performing assets have been
flat. Karur Vysya generates strong internal accruals leading to
lower equity dilution when compared with other private sector
peers. KVBs owned funds has grown at a compounded rate of around
18% in the past 5 years. Specialists in discovering Multibagger
stocks 16. Important Parameters KVBs fee income now contributes
tomore than 3/4th of its other income. Feeincome of a bank is a
steady cashbusiness and its growth is a good sign. Companys profits
are less dependenton the Treasury sale profits whichreduces the
volatility in its earnings. RBIs rate cuts of 75-100bps
willincrease PoSI in the next fiscal year. Specialists in
discovering Multibagger stocks 17. Investment Rationale Specialists
in discovering Multibagger stocks 18. Margin LeversKVBs Business
Mix KVBs Deposit Profile Karur Vysya Banks CASA ratio has been
slipping for a while. Partially due to the interest rate
environmentfavoring FDs and partially due to new branch additions.
The new branches when mature, will provide scopefor increasing the
CASA ratio. Management has targeted achieving a CASA ratio of 30%
in the medium term. Karur Vysya Banks Credit-Deposit ratio is less
than 73% which provides scope for improvement and thiswill lead to
better margins. Also with the cut in CRR, KVB will have sufficient
scope to hold (or) improve itsNIMs. We expect the margins to bounce
back to their average levels in the medium term. Operational
efficiencies and Fee income will also get a decent boost with the
tie-ups with 3rd partyproviders and branch addition. These along
with Cyclical Banking improvements will lead to better Marginsand
Profits for Karur Vysya bank. Specialists in discovering
Multibagger stocks 19. 10 Year Snapshot KVB has shown consistent
growth in operating income and profits for the past 10 years. There
was a majordrop in profits in 2004-05 because of a increasing
interest rate environment which led to higher provisioningon its
treasury portfolio and one-off shift in the value of its Bond
holdings. Presently, treasury operations contribute less to its
overall profits and moreover a drop in the currentinterest rates
will lead to higher MTM profits from its bond holdings. KVBs 10
year performance is as goodas any other Top Bank in the country.
Specialists in discovering Multibagger stocks 20. Awards &
RecognitionKVBs performance has been well recognized with several
awards like, Best bank Award for Mobile Banking among small Banks -
IDRBT Banking Technology Excellence Awards, 2010-11, byIDRBT,
Hyderabad. Best Cost Efficient Private sector Bank- FIBAC Best bank
Award,2011 by FICCI & IBA. Best Old Private Sector Bank CNBC TV
18 Best Banks & Financial Institutions Awards 2011 by CNBC-TV18
& MCX. Best Old Private Sector bank Runner up FE India Best
Bank Awards,2011. EDGE AWARD from Information Week Magazine for
Best IT implementation. Business World Price Waterhouse Coopers
Best Bank Awards, 2011 Best Small Bank and Fastest Growing Small
Bank. Business Today KPMG - Best Mid-sized Bank - Quality of
Assets. Second Place in the Mid-sized banks category. Specialists
in discovering Multibagger stocks 21. KVB Vs other Banks Banking is
a business of getting deposits and lending them profitably. On the
lending front, KVB has astrong ingrained culture for better risk
appraisal which shows in the NPA numbers. KVB has very
littleexposure to the stressed sectors like Airlines,
Infrastructure, SEBs etc. Hence, we can expect KVB to reportdecent
NPA going forward. The bank has better recovery mechanisms and
adequately provides for Provisions which makes sure thatthe Bank is
well capitalized to handle any risks. KVBs wrote-back several
provisions which it had provided forduring the downturn of 2008-09
and this boosted its profits tremendously in the next year. Karur
Vysya Bank has the highest (Profit After Tax/ Average Assets)
amongst all banks in the past 5 years.Consistent Fee income growth
is one of the important reasons for this achievement. Specialists
in discovering Multibagger stocks 22. Comparative ValuationsPeer
BanksOperational ParametersValuation ParametersPrivate Sector ROA
(E)NPMRONWROE (FY-11)PE Ratio Dividend YieldHDFC Bank Ltd.1.60%
16.09%15.47% 16.75%24.63%Dhanlaxmi Bank Ltd. 0.50%2.49% 3.02%4.06%
20.961%Development Credit Bank Ltd.1.30%3.31% 3.62% 14.20%
19.881%ICICI Bank Ltd. 1.34% 15.91% 9.27%9.66% 18.972%ING Vysya
Bank Ltd. 0.91%9.56%12.05% 13.45% 17.621%YES Bank Ltd. 1.50%
15.56%19.17% 21.13%17.51%Axis Bank Ltd.1.47% 17.20%17.87% 19.34%
13.591%Karur Vysya Bank Ltd.1.54% 16.82% 20.71%22.26% 10.32 3%South
Indian Bank Ltd.1.00% 11.10%17.31% 18.52%9.242%Karnataka Bank Ltd.
0.89%7.80% 8.39%9.63%8.543%Lakshmi Vilas Bank Ltd. 0.80%8.49%12.44%
13.04%7.882%Jammu & Kashmir Bank Ltd. 1.30% 15.23%17.68%
18.96%7.193% KVB in spite of strong operational parameters which is
inline with Large banks, has been quoting at asignificant valuation
discount to them. In all important parameters like ROA, NPM and
RONW - Karur VysyaBank is amongst the top 3 private sector banks
which indicates its efficient operations. Specialists in
discovering Multibagger stocks 23. Financials Specialists in
discovering Multibagger stocks 24. Earnings ProjectionIncome
Statement (INR Cr) FY 10FY 11FY 12E FY 13ENet Interest Income
5647669021118 KVBs top-line will grow at ahealthy pace due to
strongOther Income247264318384growth in its lending book andTotal
Income8121031 1220 1502 Other income growth.Salaries163229263327
There has been a compressionin margins due to cyclical
factorsOverheads 349430525645in banking. We expect marginsTotal
Provisions37 39 107158to rebound from FY-14.Tax 90 146103158 We
dont expect any significantPAT 336415.6482536equity dilution in the
coming 2years and hence ROE willDiluted EPS 62.2 44.9 45.2
50.1increase owing to betterleverage of funds. Provisioning demand
will startROAA %1.7 %1.7 %1.5 %1.3 %to moderate which will provide
astrong boost to the bottom-lineROAE %22.6 % 22.3 % 20.2 % 18.7 %
of Karur Vysya Bank.Adjusted Book Value 174223251286Specialists in
discovering Multibagger stocks 25. Concerns & Reasoning1.)
Decreasing Return Ratios :Banking being a cyclical industry goes
through bad phases (past 2 years) when there is a huge increase in
theinterest rates which affects NPAs, Provisioning, Treasury
Operations, NIMs etc. Evidently these get reflectedin the lower
ROAs and ROEs. With the Interest rate cycle reversal, we expect the
bank to maintain orslightly improve its Return ratios going
forward.2.) Muted Bottom-line Growth in the past 2 years :Banks
bottom-line has not grown significantly because of the compressions
in margins. This is due to steepinterest rate increase, new branch
addition etc. Growth in expenses will moderate and this along
withstabilizing NIMs will help the banks bottom-line to grow at a
similar pace to that of its top-line.3.) Low CASA Ratio :KVBs lower
CASA ratio is a matter of concern and the management intends to
shore this up in the comingquarters which will help in better
margins. Moreover, high interest rates led retail customers to move
tocompeting savings products and attractive FDs. KVBs branch
addition will help it in building a strong CASAfranchise in the
coming years.4.) Lower Retail Assets:KVBs loan portfolio has very
little Auto loans, Personal loans etc. But, company works with
NBFCs to sellcustomized lending solutions to its customers. Thus,
the bank hopes to boost its Fee income which is astrong source for
profits. Company has tied up with M&M Finance to provide
tractor loans to its clients. Specialists in discovering
Multibagger stocks 26. Conclusion Specialists in discovering
Multibagger stocks 27. Price Chart ShareDec Sept June Mar Holding
%20112011 2011 2011KVB Price Range Promoters 3.26 3.27 3.46 3.51
FII21.220.9222.6321.43 DII6.686.79 4.83 4.23 KVB is the best
performing banking stock inthe past 12 months. It has
out-performedBANKEX by a significant margin. This showsthe
stability of the stock. KVB has been trapped in a price range
withvery little price volatility. With good resultsexpected over
the next 2 quarters, we expectthe stock to break out of its trading
range anddeliver good returns for its shareholders. Specialists in
discovering Multibagger stocks 28. KVBs Attractiveness KVB has been
trading at the middle end of its historic valuations in spite of
better business performance. KVB with improved fundamentals,P/E
Band increased scale of operations and higher Return ratios will
tend to trade at >2X Book value in the future. Stocks
attractiveness has attracted a lot of good investors (or) Smart
money with the likes of Chryscapital pickingRecent Bulk Deals in
KVB :-up a significant chunk in the bank. Indian Markets Legendary
investor1.) Chryscapital 3.91% on Mar-9, 2012. Rakesh Jhunjhunwala
continues to2.) Wharol 1 Million shares on Mar-20, 2012. hold KVB
stock for more than 15 years3.) Goldman Sachs 0.8% on Mar- 21,
2012. which shows his conviction in the3.) Olympus Capital 4.8% on
Apr-18,2012. growth of the bank.Big Bull Rakesh Jhunjhunwala holds
over 4.3% stake in KVB. Once shares change hands from weak
investors to smart investors, the stock will be ready for a good
bounce. Specialists in discovering Multibagger stocks 29.
ConclusionWe believe that Indian Banks are the best proxies to
profit from the Countrys growth. When the countryis expected to
grow at near double digit rates over the next several years,
countrys banks should grow at arate of 2.5 times the GDP growth and
Karur Vysya Bank being a well run bank should definitely out
performthe industry by a few basis points and that is a very
serious growth of over 20% consistently. With its lowbase, KVB will
continue to increase its market share profitably. Karur Vysya Banks
margin levers along with its increasing scale is not being
reflected in its stock price. Itshugely undervalued when compared
to other well-run private sector peers like Yes Bank, IndusInd
Bank,Axis, HDFC etc. This is for a Bank which has one of the lowest
NPAs, High ROEs, Low Cost/Income Ratio andHighest Net Profit/ Total
Assets which indicates the quality of its operations.A well managed
Private sector Bank with the best Industry Parameters is available
at 1.4X its ProjectedBook and less than 8X its Fy-13 Earnings. Its
not rocket science to understand that, we are buying into thestock
at attractive valuations. Risk in the investment is very low
considering its consistent Performance underdifficult circumstances
over the past several decades. Moreover, KVBs uninterrupted
dividend along with itspresent Dividend Yield of over 3% makes it
highly attractive. Karur Vysya Bank is a perfect SIP stock. We are
buying into a strong compounding stock at the lowerend of its
historic valuations. Hence, the Banks inherent +20% profit growth
along with scope forvaluation expansion will lead to strong returns
for its long term shareholders. In short - KVB stock will beable to
give >2X returns, compared to what the Bank gives for its FD
Holders. Accumulate the stock andjust look at the Wealth creation
that happens in the next few years. Specialists in discovering
Multibagger stocks 30. Sit back and Relax while your Money
worksHard for you A Fund which is backed by the Best EquityResearch
A Fund which invests in Strong secular growth companies which will
be theHBJ Capital Ventures LLPleaders of the Next Bull - Your
Partner in Wealth CreationMarket !For additional details, Call Us @
+91 9886736791 31. THANK YOU Specialists in discovering Multibagger
stocks