ICICI Securities Recommends Buying Karur Vysya Bank, Targets Price of Rs 360

Karur Vysya Bank Reports Strong Q4FY26 PAT, Maintains BUY Rating

Karur Vysya Bank (KVB) has reported a strong Q4FY26 profit after tax (PAT) of INR 7.25 billion, representing a year-over-year (YoY) growth of 41% and an 8% beat. This growth was primarily driven by a robust net interest income (NII) increase of 25% YoY. On a quarter-over-quarter (QoQ) basis, growth was consciously calibrated, while YoY growth was strong at approximately 17%.

The bank's core net interest margin (NIM) saw a significant increase of 25 basis points (bps) QoQ and 20 bps YoY to 4.25%, surpassing KVB's recently upgraded guidance. Return on assets (RoA) sustained at 2% for the second consecutive quarter. The common equity tier 1 (CET 1) ratio stood strong at 17.7%. Asset quality was healthy, with muted net slippages, stable net non-performing assets (NPA) to provision coverage ratio (PCR), and minimal small and medium-sized advances (SMA) 1+2.

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Despite expectations of sustained credit growth at around 100-200 bps above the industry average, KVB guides for a FY27 net interest margin (NIM) to shrink to the 3.75-3.8% range, compared to 4% in FY26, due to increased competition in the micro, small, and medium-sized enterprises (MSME) sector and higher funding costs. The bank also guides for a return on assets (RoA) of 1.7-1.8% in FY27, compared to 1.93% in FY26. Furthermore, the bank expects gold loans to comprise no more than 35% of its portfolio, down from the current 30%.

We maintain our BUY rating on KVB with a revised target price of INR 360, valuing the stock at approximately 1.8 times its adjusted book value (ABV) for FY28. We also take comfort in the bank's management history of conservatively guiding and improving its PAT trajectory for more than 20 consecutive quarters.