Karnataka Bank
Quoting at CMP of Rs 145 Karnataka Bank has already given a 60% gain since it made the 52 week low of Rs 80 on 05 Apr 2017.
But even at CMP it’s PE ratio is 9.8 and Price to Book Value ratio is at 0.8
“The bank is targeting to have a NIM of over 3% by March 2020 with gross NPAs and net NPAs projected to be less than 1.5% and 0.6% respectively. More importantly, it plans to double its turnover to 180,000 crore over the next three years. Going by KBL’s recent performance and change in the approach of management, we feel that it will achieve its target well ahead of its own projections. Incidentally, at the current market price, the stock is available at a price to book value (P/B) of 0.70x. Normally, banks with NIMs in excess of 3% with low NPAs gets valued at 2-3x P/B. With the improvement in the overall performance and focus on improving CASA, the prospect for KBL looks more than bright.”
Quoting at CMP of Rs 145 Karnataka Bank has already given a 60% gain since it made the 52 week low of Rs 80 on 05 Apr 2017.
But even at CMP it’s PE ratio is 9.8 and Price to Book Value ratio is at 0.8
“The bank is targeting to have a NIM of over 3% by March 2020 with gross NPAs and net NPAs projected to be less than 1.5% and 0.6% respectively. More importantly, it plans to double its turnover to 180,000 crore over the next three years. Going by KBL’s recent performance and change in the approach of management, we feel that it will achieve its target well ahead of its own projections. Incidentally, at the current market price, the stock is available at a price to book value (P/B) of 0.70x. Normally, banks with NIMs in excess of 3% with low NPAs gets valued at 2-3x P/B. With the improvement in the overall performance and focus on improving CASA, the prospect for KBL looks more than bright.”
Ambitious business plan unveiled
At this stage, we have to note that Karnataka Bank has announced an ambitious business plan for FY 2017-18 which includes taking the business turnover to 1,10,000 crore.
This is what the Bank has said:
“The growth outlook for 2017-18 is positive and we should be able to encash all the growth opportunities to take the business turnover to a new high of Rs. 1.10 lakh crore”.
It was also stated that the bank intends to open 35 new branches, including nine financial inclusion branches, to take the tally to 800 by March 2018. As on March 31, the bank had 765 branches across the country. It is also proposed to take the tally of ATMs to 1,450, from the present 1,380.
E-lobbies and mini e-lobbies are planned to be increased to 150, from the present 110.
It is obvious that this ambitious business plan will set the cash registers ringing and that the Bank will make hefty profits.
Why will Karnataka Bank be a 2x or 3x multibagger?
(i) The Bank is quoting at rock-bottom book to price valuations of 0.7 or 0.8;
(ii) The Bank has projected to double its turnover by 2020;
(iii) The Bank is a private sector one though quoting at the valuations of a PSU;
(iv) Banks with NIM of 3%+ and GNPA of below 1% usually quote at book to price of 2x, 3x or even 4x.
(v) Karnatka Bank’s NIM in FY 2016-17 is about 2.80. By FY18, the NIM will cross 3%. The GNPA will come down below 1%;
(vi) In the next five years, Karnataka Bank’s business will double. The book to price will also double.
Applying this logic, Karnataka Bank is expected to be a three bagger or four bagger in the foreseeable future.
Happy Investing
At this stage, we have to note that Karnataka Bank has announced an ambitious business plan for FY 2017-18 which includes taking the business turnover to 1,10,000 crore.
This is what the Bank has said:
“The growth outlook for 2017-18 is positive and we should be able to encash all the growth opportunities to take the business turnover to a new high of Rs. 1.10 lakh crore”.
It was also stated that the bank intends to open 35 new branches, including nine financial inclusion branches, to take the tally to 800 by March 2018. As on March 31, the bank had 765 branches across the country. It is also proposed to take the tally of ATMs to 1,450, from the present 1,380.
E-lobbies and mini e-lobbies are planned to be increased to 150, from the present 110.
It is obvious that this ambitious business plan will set the cash registers ringing and that the Bank will make hefty profits.
Why will Karnataka Bank be a 2x or 3x multibagger?
(i) The Bank is quoting at rock-bottom book to price valuations of 0.7 or 0.8;
(ii) The Bank has projected to double its turnover by 2020;
(iii) The Bank is a private sector one though quoting at the valuations of a PSU;
(iv) Banks with NIM of 3%+ and GNPA of below 1% usually quote at book to price of 2x, 3x or even 4x.
(v) Karnatka Bank’s NIM in FY 2016-17 is about 2.80. By FY18, the NIM will cross 3%. The GNPA will come down below 1%;
(vi) In the next five years, Karnataka Bank’s business will double. The book to price will also double.
Applying this logic, Karnataka Bank is expected to be a three bagger or four bagger in the foreseeable future.
Happy Investing
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