Karnataka bank – private bank @ public sector valuation

(Chandra) #41

Hello "Karnataka Bank to merge with Kotak Mahindra bank with swap ratio 5:1 " This looks like rumor only. I dont find any news in Web /Media.
Disclosure: Invested.

(Raghu) #42

Whenever there is any merger news, this rumor comes up(i have heard this many times now). Its just a rumor.

(butun) #43

Even if it was not a rumour (It is a rumour IMHO) that ratio does not look very lucrative for KTK bank share holders.

(Rahul2015) #44


(Aditya Mehta) #45

#Q1 FY18
Provisions up 45.9% YOY
Net NPA @ 3.20% vs 2.61% YOY
Mgt unable to control NPAs despite earlier promises.


(Aditya Mehta) #46

Reason for increase in NPA due to one of the companies exposure of Rs 48 crore to one of the 12 accounts identified by the Reserve Bank of India under insolvency and bankruptcy law.
Managing Director and Chief Executive Officer MS Mahabaleshwara confident enough for 15% growth in this year.
Hope for the best.

(nowin) #47

Thanks Aditya !
Has anyone attended todays concall? Kindly update if any key points have been shared

(Aditya Mehta) #48

Apart from the financials discussed in concall

Regarding NPA’s

  • Npa was high due to a steel a/c with which bank was dealing with from last 10 years turned bad this quarter.
    Total Exposure of Steel company to banking sector is Rs.3000Cr
    And Share of KTK bank was Rs.122cr & Provision for same Rs.18cr

Mgt Expects this account to get upgraded and therefore it was only temporary effect.

  • Component of NPA’S as of june 17
    65% of NPA represent SUBSTANDARD ASSET requiring 15% provision

  • Target of 2% NNPA REMAINS INTACT.

  • Precaution against slippages- Credit Monitoring Department For Loans more than Rs 1Cr and regional Managers for less than Rs.1cr

  • Regular review of all account and have recovery strategy to recover the account.

  • No account for ARC in Q1

  • Fully Provisioned Gross Npa - Rs.32.91Cr

  • 3 a/c in SDR out of which 2 have got resolved (Rs.378cr Exposure of 2 a/cs Resolved)

-Have exposure of Rs.49 Cr. to 1 out of 12 accounts identified by RBI

  • 7 a/cs under 5/25 scheme - Exposure of Rs.195Cr.


  • Target of 15% minimum credit growth this fiscal
  • Identified 117 branches to implement SPECIAL CREDIT AUGMENTATION STRATEGY
  • Street level Executive Targeting across India for Credit Growth.

Overall Management seems confident enough of achieving 2% NNPA target by Q4 FY18 and remains committed towards achieving VISION 2020.
Especially CEO Mahabaleshwara MS is passionate to take Karnataka Bank to new Heights even in his interview to ET , the statements given by him were very bold although seems to be far from reality but not impossible.

NOTE: These are highlights of concall may have missed some points.

(Aditya Mehta) #49

The new MD is quite upfront and active with respect to achieving THE VISION 2020

(ragav) #50

The banks growth seems good and as per the 2020 commitment of a turnover of 1,80,000 Cr, In this Q118 not so impressive growth with the NII and Loan book , The current turnover of the bank is around 94000 Cr so it says a 26% growth from here in 3 years that is a 26% CAGR in turnover in 2020.

The current ROA at 0.74% vs 0.76% in 2015-16 and ROE 10.24% . Asset quality seems to be deteriorating in this Q118 the GNPA and NNPA have raised with increase in provisioning, AS per the managements guideline if NPA are contained below 2% in Q418 then i would expect a 44500 Cr advance by then and a NPA of just 900 cr (J.A Assumption) which will then improve my Book value and return ratios with lesser provisioning and Written backs if any.

Current 13.30 % CAR looks well capitalized but with improved returns i would safely assume that by Q418 the banks CAR will improve if the NPA’s are resolved. The banks CD ratio is just 68.44% which i could say is under loaned which should be improved to generate more Interest.

Adjusted Book value for the bank for Q118 is at 138.5 which and currently the stock trades around 160 levels, seems to be fairly priced as the ROE is just about 10.2% with above said commitments lets hope the bank can deliver on the promise.

Disclaimer : Invested in KTK bank, Opinions are my own,
Source of Data from Q118 report , 2016 Annual report .

(Aditya Mehta) #51

Karur Vysya Bank came out with its Q1 no.'s today…as far as financials are concerned it seems to be similar to that of Karnataka bank.
But as far as valuations are concerned the following table makes it quite clear…

([email protected]) #52

In comparison of KTK bank with its peers, it looks to be performing better and still the performance doesnt show up in the stock price, can some one throw some light.

(sambandham82) #53

6 months ago, even KVB was trading at P/B of 1 and now reached fair value. Karnataka bank will also catch up.

(Special Sit) #54

In my view, the problem with KTK is that their current earnings power is a mirage given they are paying almost no tax. The normalised earnings will fall even if they grow the book once they have to pay 30-33% tax like other banks. The ROA is not “real” in that sense. Stick on a 30% tax rate and see what the real normalised eps is.

(pskrishnan) #56

I participated in the Karnataka Bank (KBL) Q2 Results investor’s call yesterday and briefly interacted with the management. My views on KBL below based on the interaction;

  1. KBL has set an target of Rs 180000 crores business by 2020, As of September 2017 the total business is Rs 97000 crores. With 2 1/2 years to go, KBL needs to almost double their business. There past track record of growth is around 12 to 13% per annum in the last 10 years. This suggests that at a best case scenario KBL can achieve around Rs 135000 to Rs 140000 crores business by 2020. When queried about this, Mr Mahabaleshwara acknowledged that this will be a challenge but he mentioned that he will still stick with the target of Rs 180000 crores business by 2020

  2. Profitability and efficiency is a major concern in my view. Though business per branch and employee has grown 6.5% CAGR over a 10-year period, profits per branch and employee is stagnant over the last 10 years. Any revenue / business growth is not adding to the bottom line

  3. KBL is targeting a Cost to Income ratio of 45% by March 2018 down from 47.6%

  4. NIM’s are around 3.1% which is a decent spread

  5. KBL targeting 2% NNPA by March 2018

  6. KBL looking at a consultant to drive their transformation initiatives. The bank is looking at the proposed / upcoming transformation initiatives for which it plans to engage a consultant to address growth, profitability, efficiency and future related issues. The consultant can propose changes, new growth ideas but how does one change a close to 100 year old culture. There is too much expectation and dependency on the proposed / upcoming transformation initiatives

  7. I am also not sure how an old fashion bank like KBL can handle the digital & fintech disruptions and how well placed they are to capitalise on the digital & fintech disruptions. I have not seen any commentary from the management on this. They can potentially lose market share to new age banks and there could be a value erosion

Not convinced that KBL will be a multi-bagger. Happy for any contrary views on KBL

(samip2u) #57

Dear Butun, Ref to this old post of yours, i just wanted to understand how the swap ratio are evaluated in the merger context being favourvale or otherwise… could you help me with a calc or link which explains ?
thanks alot, in adv.

(Aditya Mehta) #58

Some good news after long time. Bank progressing but stock price consolidating.


(shunz) #59

As per latest shareholding pattern, Kedia reduced his holding from 2 to 1.17% in previous quarter.

(Saravanan B) #60

In a recent interview, he mentioned he would buy it back in the future. Please watch that interview on CNBC. The story still holds.

(shunz) #61

Don’t understand why he would want to do that. Is he looking to buy it at lower levels? Then that would mean there isnt enough margin of safety at current levels. Will search that interview.