Karnataka Bank shares up 100% in 6 months; stock can hit Rs 191 level, says Anand Rathi

Shares of Karnataka Bank have climbed 100 per cent in the last six months. If one goes by what Anand Rathi says the banking stock has more legs to the rally. On Tuesday, the scrip settled at Rs 149.95 level, up 0.77 per cent. Anand Rathi has a February 2024 target of Rs 191 on the stock. The brokerage called Karnataka Bank's December quarter results as another quarter of strong performance, as it anticipates the return on asset (RoA) for the lender to stabilise near 1 per cent level.

The bank reported a 105.32 per cent YoY rise in net profit at Rs 300.63 crore for the December quarter against Rs 146.42 crore in the same quarter last year. Asset quality improved, with gross non-performing assets (NPAs) falling 8 bps to 3.28  per cent from 3.36 per cent in the September quarter. The provision coverage ratio (PCR) improved to 80.21 per cent from 73.66 per cent a year ago, the lender said.

NII for the quarter was up 26.74 per cent, while net interest margin (NIM) expanding to an all time high of 3.63 per cent against 3.15 per cent YoY.

"Strong NII growth in Q3 and lower opex kept operating performance strong for Karnataka Bank with its cost-to-income ratio holding below 50 per cent. Strong PPOP combined with moderate provisions kept profitability strong with the RoA coming at 1.21 per cent.  Asset quality and PCR slightly improved," Anand Rathi said.

"Besides, with credit growth picking up and moderating credit costs, earnings are expected to be strong with RoA expected to stabilise at 1 per cent," it said.

Karnataka Bank said its slippages for the quarter at Rs 370 crore comprised of 2.5 per cent of loans. Anand Rathi said it was better than what it expected due to lower slippages from the restructured book. Recoveries and upgrades were strong, reflecting the bank’s collection efforts, Anand Rathi said.

"With most of the stress already delinquent/restructured, we expect slippages to moderate from now. We expect GNPA to hold below 3 per cent through FY24 and FY25," it said. 

Adani Rathi said it has a Buy rating on the stock, with a revised target price of Rs 191, valuing the stock at 0.6 times FY25 adjusted book value.
 

Also read: Stocks in news: Adani Green, Bharti Airtel, Hero MotoCorp, Ambuja Cements and more

Also read: Paytm share price: Macquarie double upgrades stock, ups target to Rs 800 from Rs 450 earlier